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India Pharmaceuticals
F3Q Preview: Good but Also
Testing Quarter
Quick Comment – We expect strong earnings for
the Indian pharma industry in F3Q11: We estimate
average sales growth of 14.1% yoy (5.8% qoq), with
most companies under our coverage reporting double
digit growth. We estimate 19.8% yoy operating profits
growth (excluding Ranbaxy due to forex gains last year
and 20.4% net profit growth (ex Ranbaxy due to
extraordinary income/tax). Good results should be
driven by steadily growing base business plus new niche
launches across the industry this year.
Quarter could reaffirm the earnings power for Sun
and DRL: This would be Sun’s second consecutive
quarter of earnings without major one-off items
(eloxatin/Protonix) and could establish Rs4.4 bln base
business earnings power (ex Taro) also driven by a few
continuing niche opportunities (bupropion XL, optivar,
Effexor tabs). We expect DRL to show sequential growth
in earnings, driven by lansoprazole launch in the U.S.
3Q should include the impact of Seroflo launch in South
Africa for Cipla along with higher overheads for Indore
SEZ. Lupin should include Suprax seasonality, though
impact of incremental Lotrel competition would be felt
only in March 2011 quarter. We expect a strong quarter
for Fortis, driven by continued performance of mature &
Wockhardt hospitals and finance income.
What to watch out for: 1) Ranbaxy’s commentary on
FDA issues, Nexium supply to AZN and relatively lower
market share for Aricept. 2) Sun’s views on Taxotere
launch and plans for U.S. front end. 3) DRL – update on
fonda timelines, Bollaram incident, progress on GSK tie
up. 4) Lupin – Update on OC portfolio and unfolding
competition. Impact of INR appreciation (vs. USD) –
3.5%-4% yoy and qoq; 1%-2% depreciation (vs. Yen
and Euro).
Investment thesis: We maintain OW ratings on Sun,
DRL, Fortis, LPC and Ranbaxy; EW on Cipla, GSK and
BIOS. Results calendar announced so far – Biocon
(20 January), DRL (25th ), Lupin (27th ) and Sun (31
st )Ranbaxy and GSK in February
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