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Pharmaceuticals
India
Takeaways from KIE’s Hyderabad Pharma Day. We took a group of investors for
meetings with three companies—DRL, Aurobindo and Divis. Key takeaways are —DRL
seemed (1) confident of returning to 13-15% growth rates in India over the medium
term though exact timelines were not given, (2) US OTC business could surprise
positively and (3) FY2013E US$2.6-2.7 bn sales guidance is intact. Divis does not intend
to utilize cash for any inorganic acquisition, except to acquire technologies; it does not
foresee recent macro trends affecting its business; FY2012E sales guidance maintained
at 25%.
Dr Reddys—Satish Reddy (COO) Umang Vohra (CFO)
The DRL management discussed the recent setback in India in detail, the key reasons for which
are—(1) high MR attrition, (2) execution issues in its rural foray, (3) key brands declining in
urban areas which has led to the acute segment (70% of sales) growing at poor rates of 4-5%.
It does not see any issue with growth in any of its chronic segments. The only caveat to India
growth is price control which could either take the form of price monitoring (best-case scenario
and which industry is lobbying for) or price control of all 348 drugs in NLEM list (worst-case
scenario).
DRL did not seemed perturbed by a slow pick-up in key US launches as—(1) In Arixtra, it faces
scale-up issues due to complexity of processes; it is confident of reaching 35% market share in
12 months from launch, (2) Allegra D24 is behind-the-counter product, hence, the dynamics
are different from other OTC products. Overall, DRL seemed confident of its US OTC business
reaching US$200 mn by FY2014E (US$60 mn in FY2011) with overall gross margin in this
business being, 15% lower than the generic gross margin.
DRL guided for the margin in Russia business sustaining at similar levels, unless price regulation
is adverse.
DRL believes its settlement terms with Pfizer regarding Atovastatin are along similar lines as
Teva and Mylan, indicating a May 2012 launch, in our view. DRL expects a 4-5-player market in
the first year and a 7-8-player market in the second year and does not expect it to impact its
simvastatin sales.
Divis—Kiran Divi (Director, son of Murali Divi), Kishore Babu (CFO)
Divis does not foresee any slowdown in business due to recent macro trends, It maintains that
there cannot be ’destocking of destocking‘ post the last round of inventory rationalization
which hit them in FY2010, and with just in time deliveries, there is no need for destocking.
(1) Long-term relationships with customers and (2) excellent chemical synthesis capabilities will
drive its chemical synthesis business while (3) DMF lock-in with partners, and (4) patent expiries
of key products for which Divis has tied up with multiple partners (for example, Sartans—Divis
foresees reaching market share of 40% when its partners launch) will drive its API business.
In Nutraceuticals, Divis maintains there is no global player besides DSM, BASF and itself and due
to time taken to gain entry into major customer segments, sales ramp-up has been slow. It
envisages sales in this segment growing at a minimum of 25% sales per annum without any
major capex.
There are few products which are in Phase III with custom synthesis customers, for which Divis
has signed up as exclusive API supplier—timelines depend upon approval of the product.
No entry into biosimilars unless guidelines are firmed up
All large contracts are protected for crude + exchange fluctuations up to a certain band. For other
contracts, they are exposed and would gain favorably.
Aurobindo—N Govindrajan, (CEO - API, CRAMS), Sudhir Singhi (CFO)
Rs4.5 bn capex incurred in FY2012E, this marks end of the major capex cycle. Capex is
dedicated towards building an OC block in SEZ and dedicated block for the Japanese
market at its SEZ and warehouse in US and capex across its existing units.
US$ 2 bn in FY2014E sales guidance maintained. Overall, Aurobindo sees FY2012E sales
growth at 18% with operating margin at similar levels as 1QFY12 with probably some
improvement in 2HFY12E. In FY2013E, it expects formulations to report solid growth of
at least 30% boosted by Pfizer commercialization in emerging and regulated markets.
No plans to tie up with another partner as all focus remains on delivering through the
Pfizer deal.
Strengthening of dollar versus the Rupee could hit them adversely as though they gain in
revenues, they lose (1) in debt (ECB) and (2) imports (mainly from China).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pharmaceuticals
India
Takeaways from KIE’s Hyderabad Pharma Day. We took a group of investors for
meetings with three companies—DRL, Aurobindo and Divis. Key takeaways are —DRL
seemed (1) confident of returning to 13-15% growth rates in India over the medium
term though exact timelines were not given, (2) US OTC business could surprise
positively and (3) FY2013E US$2.6-2.7 bn sales guidance is intact. Divis does not intend
to utilize cash for any inorganic acquisition, except to acquire technologies; it does not
foresee recent macro trends affecting its business; FY2012E sales guidance maintained
at 25%.
Dr Reddys—Satish Reddy (COO) Umang Vohra (CFO)
The DRL management discussed the recent setback in India in detail, the key reasons for which
are—(1) high MR attrition, (2) execution issues in its rural foray, (3) key brands declining in
urban areas which has led to the acute segment (70% of sales) growing at poor rates of 4-5%.
It does not see any issue with growth in any of its chronic segments. The only caveat to India
growth is price control which could either take the form of price monitoring (best-case scenario
and which industry is lobbying for) or price control of all 348 drugs in NLEM list (worst-case
scenario).
DRL did not seemed perturbed by a slow pick-up in key US launches as—(1) In Arixtra, it faces
scale-up issues due to complexity of processes; it is confident of reaching 35% market share in
12 months from launch, (2) Allegra D24 is behind-the-counter product, hence, the dynamics
are different from other OTC products. Overall, DRL seemed confident of its US OTC business
reaching US$200 mn by FY2014E (US$60 mn in FY2011) with overall gross margin in this
business being, 15% lower than the generic gross margin.
DRL guided for the margin in Russia business sustaining at similar levels, unless price regulation
is adverse.
DRL believes its settlement terms with Pfizer regarding Atovastatin are along similar lines as
Teva and Mylan, indicating a May 2012 launch, in our view. DRL expects a 4-5-player market in
the first year and a 7-8-player market in the second year and does not expect it to impact its
simvastatin sales.
Divis—Kiran Divi (Director, son of Murali Divi), Kishore Babu (CFO)
Divis does not foresee any slowdown in business due to recent macro trends, It maintains that
there cannot be ’destocking of destocking‘ post the last round of inventory rationalization
which hit them in FY2010, and with just in time deliveries, there is no need for destocking.
(1) Long-term relationships with customers and (2) excellent chemical synthesis capabilities will
drive its chemical synthesis business while (3) DMF lock-in with partners, and (4) patent expiries
of key products for which Divis has tied up with multiple partners (for example, Sartans—Divis
foresees reaching market share of 40% when its partners launch) will drive its API business.
In Nutraceuticals, Divis maintains there is no global player besides DSM, BASF and itself and due
to time taken to gain entry into major customer segments, sales ramp-up has been slow. It
envisages sales in this segment growing at a minimum of 25% sales per annum without any
major capex.
There are few products which are in Phase III with custom synthesis customers, for which Divis
has signed up as exclusive API supplier—timelines depend upon approval of the product.
No entry into biosimilars unless guidelines are firmed up
All large contracts are protected for crude + exchange fluctuations up to a certain band. For other
contracts, they are exposed and would gain favorably.
Aurobindo—N Govindrajan, (CEO - API, CRAMS), Sudhir Singhi (CFO)
Rs4.5 bn capex incurred in FY2012E, this marks end of the major capex cycle. Capex is
dedicated towards building an OC block in SEZ and dedicated block for the Japanese
market at its SEZ and warehouse in US and capex across its existing units.
US$ 2 bn in FY2014E sales guidance maintained. Overall, Aurobindo sees FY2012E sales
growth at 18% with operating margin at similar levels as 1QFY12 with probably some
improvement in 2HFY12E. In FY2013E, it expects formulations to report solid growth of
at least 30% boosted by Pfizer commercialization in emerging and regulated markets.
No plans to tie up with another partner as all focus remains on delivering through the
Pfizer deal.
Strengthening of dollar versus the Rupee could hit them adversely as though they gain in
revenues, they lose (1) in debt (ECB) and (2) imports (mainly from China).
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