India Pharma Sector 3QFY11 preview – Sustained momentum: Anand Rathi

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India Pharma Sector
3QFY11 preview – Sustained momentum
We expect pharma companies in our coverage to witness steady
revenue growth, ex CRAMS space, which has not picked up since
the slowdown in CY10. EBITDA margin would be slightly hit due
to higher staff costs. Adjusted net profit growth would remain
muted at 5% yoy, owing to lower margin and higher tax rate.

 Steady revenue growth. We expect the pharma sector to register
~14% yoy revenue growth in 3QFY11e, led by growing domestic
branded formulations and expansion in the exports business.
However, the CRAMS segment would register single digit growth
as outsourcing business remains under pressure.
 Margin to slightly decline. EBITDA margin for the sector is
expected to decline a mere 150bps yoy, mainly due to rise in
personnel costs on account of substantial addition in domestic field
force over the past year, unfavorable yoy currency fluctuation and
expectation of lesser licensing income.
 Lower margin and higher tax rate to impact profitability. We
estimate adjusted net profit growth of only ~5% due to lower
EBITDA margin and higher effective tax rate on account of
increased MAT rate.
 Factors to watch. Updates on regulatory inspection and approvals
for newly set up manufacturing facilities, and proposal to add more
drugs in the price control list by the National Pharmaceutical
Pricing Authority (NPPA).