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Forex hurdle
Notwithstanding the benefit of rupee depreciation on operating earnings, 2QFY12
reported profit growth is likely to get impacted due to forex losses. Additionally,
operating earnings growth is expected to be weak either due to slackness in
domestic growth or a high base in the US. We see strong operating profit growth in
case of Divis, Dr Reddy’s and Torrent in 2Q. We remain positive on the sector
considering string of opportunities in the US and benefit of favourable currency.
Modest domestic growth during the quarter
q Domestic formulations growth for August 2011 rebounded to healthy 14.4% from single
digit growth in July.
q Among the larger Indian pharma names, Sun Pharma and Lupin have been the most
consistent in growth throughout the year.
q Dr Reddy’s, IPCA and Cipla are likely to report weak domestic numbers in 2Q.
q Volume discounts by some of the companies have also been contributing to growth
pressures in our view.
Limited US launches during the quarter except Dr Reddy’s
q Most Indian pharma companies have seen limited new product introductions in the US
market during 2QFY12 except Dr Reddy’s.
q Dr Reddy’s has introduced generic versions of Arixtra, Allegra D24 OTC and Exelon. It
has also gradually inched up market share in OTC segment (Allegra and Prilosec).
q Apart from Dr Reddy’s, Cadila has gained market share in a number of products and is
expected to deliver strong growth in the US.
Negative impact for companies with hedges/ foreign liabilities
q Companies will large forex hedges or foreign liabilities will see substantial immediate
negative hit due to translation loss (liabilities) or MTM loss.
q Translation losses on FCCB/ECB for Aurobindo, Jubilant Life, Orchid and Strides will have
significant one time negative impact. Ranbaxy will be hit due to MTM loss on large
outstanding forex hedge.
q Most companies run hedges to cover 2-6 quarters of export receivables and will see MTM
loss on those, this is neutralized to some extent by gain on receivables and inventory.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Forex hurdle
Notwithstanding the benefit of rupee depreciation on operating earnings, 2QFY12
reported profit growth is likely to get impacted due to forex losses. Additionally,
operating earnings growth is expected to be weak either due to slackness in
domestic growth or a high base in the US. We see strong operating profit growth in
case of Divis, Dr Reddy’s and Torrent in 2Q. We remain positive on the sector
considering string of opportunities in the US and benefit of favourable currency.
Modest domestic growth during the quarter
q Domestic formulations growth for August 2011 rebounded to healthy 14.4% from single
digit growth in July.
q Among the larger Indian pharma names, Sun Pharma and Lupin have been the most
consistent in growth throughout the year.
q Dr Reddy’s, IPCA and Cipla are likely to report weak domestic numbers in 2Q.
q Volume discounts by some of the companies have also been contributing to growth
pressures in our view.
Limited US launches during the quarter except Dr Reddy’s
q Most Indian pharma companies have seen limited new product introductions in the US
market during 2QFY12 except Dr Reddy’s.
q Dr Reddy’s has introduced generic versions of Arixtra, Allegra D24 OTC and Exelon. It
has also gradually inched up market share in OTC segment (Allegra and Prilosec).
q Apart from Dr Reddy’s, Cadila has gained market share in a number of products and is
expected to deliver strong growth in the US.
Negative impact for companies with hedges/ foreign liabilities
q Companies will large forex hedges or foreign liabilities will see substantial immediate
negative hit due to translation loss (liabilities) or MTM loss.
q Translation losses on FCCB/ECB for Aurobindo, Jubilant Life, Orchid and Strides will have
significant one time negative impact. Ranbaxy will be hit due to MTM loss on large
outstanding forex hedge.
q Most companies run hedges to cover 2-6 quarters of export receivables and will see MTM
loss on those, this is neutralized to some extent by gain on receivables and inventory.
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