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Pharmaceuticals
India
Hits and misses in 1QFY12, realign target prices. 1QFY12 results were marked by
more misses than hits with only three companies within our coverage meeting our
estimates on operational front. Three broad trends emerged—(1) sales growth dips in
India for most companies, (2) EBITDA margin under pressure on account of huge staff
cost increases although gross margin is steady yoy, and (3) no increase in tax rate to
MAT rate post EOU benefit expiry/SEZ attracting MAT rate, except for Divis and Cipla.
We realign our TPs to the new system with all preferences remaining same. Our sector
preferences post (1) 1QFY12 results and (2) switch to the new rating system, remain
unchanged—SUN, Cadila among generics and Divis, Biocon among CRAMS.
More misses than hits in 1QFY12
Only three companies within our coverage universe either met or beat our operational estimates—
Glenmark and Jubilant exceeded our estimates while Apollo met our estimates. All other
companies missed our estimates at EBITDA level—(1) generic companies such as Lupin, Cadila,
GSK, DRL, Cipla missed both our sales and margin estimates, (2) Sun and Biocon missed our
estimates due to lower sales although EBITDA margin was in line with Sun reporting higher margin
than estimated at 33.5%, and (3) Ranbaxy reported poor margin, despite presence of high-margin
exclusivity sales.
Three broad trends emerge in 1QFY12—sales growth in India dips and remains a key concern
Three trends that emerged during 1QFY12 results: (1) Sales growth dips in India, even for
established players such as SUN which reported adjusted growth of 18% in 1QFY12, lower than
23% reported in FY2011. Glenmark was the only company to report higher sales growth yoy at
20%, higher than 17% growth in FY2011 (adjusted for VAT) (see Exhibit 1). We believe lowering
of India sales growth remains a key concern and in case the market growth does not pick up in
9MFY12, it could lead to earnings downgrades across companies. (2) Except for Glenmark and
Jubilant (see Exhibit 2), all companies reported yoy drop in EBITDA margin on account of increases
in staff cost and other expenses while gross margin held steady yoy across most companies except
Ranbaxy which had exclusivity sales last year and Dishman, Divis due to adverse product mix.
(3) Except for Cipla and Divis (see Exhibit 3) which saw tax zooming to 20% in 1QFY12, there was
no substantial increase in tax rate across all other companies post EOU benefit expiry/SEZ
attracting MAT rate.
We realign our TPs to new system
We realign our TPs to the new system. Our sector preferences remain unchanged post (1) 1QFY12
results and (2) switch to the new rating system. We prefer SUN, Cadila among generics—and
Divis, Biocon among CRAMS. We cut our FY2012-13E EPS estimates for Cadila by 4% due to
lower India growth rate at 13% in FY2012E (16% earlier) and 15% in FY2013E (16% earlier); all
other assumptions remain unchanged. According to the company, it has registered low primary
growth of 9-10% in the domestic market in July 2011, however, remains hopeful of a pick-up in
growth rate in the coming months (conditional upon market growth picking up). We, therefore,
reduce our domestic market growth rate assumption to 13% in FY2012E (16% earlier) and 15%
in FY2013E (16% earlier); all other assumptions remain unchanged. We believe Cadila’s
international business remains in good shape (US FDA resolution likely in first half 2012 if there are
no further concerns and according to the company their position on no further approvals in US is
conservative) and possible earnings upsides could emerge in FY2013E from—(1) Nesher Pharma
acquisition, we factor in US$30 mn in FY2013E, and (2) Abbott supplies, we factor in US$20 mn in
FY2013E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pharmaceuticals
India
Hits and misses in 1QFY12, realign target prices. 1QFY12 results were marked by
more misses than hits with only three companies within our coverage meeting our
estimates on operational front. Three broad trends emerged—(1) sales growth dips in
India for most companies, (2) EBITDA margin under pressure on account of huge staff
cost increases although gross margin is steady yoy, and (3) no increase in tax rate to
MAT rate post EOU benefit expiry/SEZ attracting MAT rate, except for Divis and Cipla.
We realign our TPs to the new system with all preferences remaining same. Our sector
preferences post (1) 1QFY12 results and (2) switch to the new rating system, remain
unchanged—SUN, Cadila among generics and Divis, Biocon among CRAMS.
More misses than hits in 1QFY12
Only three companies within our coverage universe either met or beat our operational estimates—
Glenmark and Jubilant exceeded our estimates while Apollo met our estimates. All other
companies missed our estimates at EBITDA level—(1) generic companies such as Lupin, Cadila,
GSK, DRL, Cipla missed both our sales and margin estimates, (2) Sun and Biocon missed our
estimates due to lower sales although EBITDA margin was in line with Sun reporting higher margin
than estimated at 33.5%, and (3) Ranbaxy reported poor margin, despite presence of high-margin
exclusivity sales.
Three broad trends emerge in 1QFY12—sales growth in India dips and remains a key concern
Three trends that emerged during 1QFY12 results: (1) Sales growth dips in India, even for
established players such as SUN which reported adjusted growth of 18% in 1QFY12, lower than
23% reported in FY2011. Glenmark was the only company to report higher sales growth yoy at
20%, higher than 17% growth in FY2011 (adjusted for VAT) (see Exhibit 1). We believe lowering
of India sales growth remains a key concern and in case the market growth does not pick up in
9MFY12, it could lead to earnings downgrades across companies. (2) Except for Glenmark and
Jubilant (see Exhibit 2), all companies reported yoy drop in EBITDA margin on account of increases
in staff cost and other expenses while gross margin held steady yoy across most companies except
Ranbaxy which had exclusivity sales last year and Dishman, Divis due to adverse product mix.
(3) Except for Cipla and Divis (see Exhibit 3) which saw tax zooming to 20% in 1QFY12, there was
no substantial increase in tax rate across all other companies post EOU benefit expiry/SEZ
attracting MAT rate.
We realign our TPs to new system
We realign our TPs to the new system. Our sector preferences remain unchanged post (1) 1QFY12
results and (2) switch to the new rating system. We prefer SUN, Cadila among generics—and
Divis, Biocon among CRAMS. We cut our FY2012-13E EPS estimates for Cadila by 4% due to
lower India growth rate at 13% in FY2012E (16% earlier) and 15% in FY2013E (16% earlier); all
other assumptions remain unchanged. According to the company, it has registered low primary
growth of 9-10% in the domestic market in July 2011, however, remains hopeful of a pick-up in
growth rate in the coming months (conditional upon market growth picking up). We, therefore,
reduce our domestic market growth rate assumption to 13% in FY2012E (16% earlier) and 15%
in FY2013E (16% earlier); all other assumptions remain unchanged. We believe Cadila’s
international business remains in good shape (US FDA resolution likely in first half 2012 if there are
no further concerns and according to the company their position on no further approvals in US is
conservative) and possible earnings upsides could emerge in FY2013E from—(1) Nesher Pharma
acquisition, we factor in US$30 mn in FY2013E, and (2) Abbott supplies, we factor in US$20 mn in
FY2013E.
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