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Pharmaceuticals
India
2QFY12E preview. We expect a muted quarter for companies in our coverage with
less than 15% yoy PAT growth for most. We expect PAT to decline/remain flat yoy for
DRL, Jubilant, Dishman and Ranbaxy while expect only Divis to report strong yoy PAT
growth at 30%. We expect DRL, Ranbaxy, Cadila, Glaxo Pharma and Cipla to report
below-industry growth in India. Divis is most likely to spring positive surprise while
Ranbaxy and DRL are most likely to disappoint versus our estimates on the operational
front. Our preferred sector picks are SUN, Lupin and Divis.
Lower India growth to impact sales growth in 2QFY12E (see Exhibit 1)
We expect most of the generic companies to continue to report muted India sales growth, a trend
witnessed in 1QFY12. We expect Cadila, Cipla, DRL, Glaxo and Ranbaxy to report below-industry
growth in India due to (1) high base last year and (2) poor underlying growth. We also think
Glenmark will report lower India growth qoq although above industry. We believe Lupin and SUN
will report higher qoq growth rates in India at 18% and 20% versus 17% and 18% reported in
1QFY12, respectively. On a reported basis, however, SUN will report 12% growth in India in
2QFY12E.
We estimate higher-than-20% sales growth only for Sun Pharma, Divis in 2QFY12E
We expect Cipla and Glaxo Pharma to report total sales growth at less than 14% due to poor India
growth. However, we expect a sequential pick-up in US sales for DRL, Cadila and Glenmark and in
international sales for Ranbaxy to help them report sales growth between 14% and 20%. We
estimate higher-than-20% sales growth for Sun and Divis at 33-35% and believe a lower sales
growth in 2QFY12E for Sun could lead to revision in its FY2012E sales growth guidance of 28-30%.
Qoq improvement in margin likely though still expected to remain down/flat yoy
We expect qoq improvement in EBITDA margin for most companies except Glenmark (see Exhibit
2). We expect Glenmark to report EBITDA margin of 21% versus 24.5% in 1QFY12. We believe
(1) a pick-up in US sales and (2) higher proportion of sales from India in 2QFY12E than in 1QFY12
will result in better margin sequentially for most companies. However, yoy margin is expected to
be either down or flat for most companies except Ranbaxy and Divis due to their low base last year.
We expect lower-than-15% PAT growth on operational front for most companies except Divis
We expect most companies except Divis to report less-than-15% PAT growth due to (1) muted
sales growth, (2) margin flat or marginally down yoy, (3) higher yoy interest cost for some such as
Ranbaxy, DRL, Glenmark, and (4) higher tax rates. We expect Divis to report 30% PAT growth
even after factoring in 20% tax rates this year due to (1) low base of sales last year and (2) lower
margin last year. We expect PAT to remain flat yoy for DRL due to sales growth of 14% being
counteracted by (1) higher SG&A spend leading to EBITDA margin remaining flat yoy, (2) higher
interest cost, and (3) higher tax rates.
Lupin + Glenmark to report licensing income this quarter
We expect Glenmark and Lupin to report high PAT growth yoy (before exceptionals) driven by
licensing income of US$25 mn from Sanofi Aventis and US$20 mn from Medicis, respectively,
which we include in other income. Excluding this income, we expect PAT growth to be muted at
11% and 7%, respectively. Glenmark will also report payment of US$29 mn to Paul Partners as
extraordinary expense this quarter.
Ranbaxy and Jubilant likely to report substantial translational losses
Since the average USD/INR rate in 2QFY12 was between 45.5 and 46 which remains lower
than average rate in 2QFY11, we expect limited operational gains from Rupee depreciation
this quarter. However, we expect Ranbaxy and Jubilant to report substantial translational
losses on their forex loans and hedges (only for Ranbaxy) as Rupee closed at 49 as of end-
2QFY12 versus 44.7 as of end-1QFY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pharmaceuticals
India
2QFY12E preview. We expect a muted quarter for companies in our coverage with
less than 15% yoy PAT growth for most. We expect PAT to decline/remain flat yoy for
DRL, Jubilant, Dishman and Ranbaxy while expect only Divis to report strong yoy PAT
growth at 30%. We expect DRL, Ranbaxy, Cadila, Glaxo Pharma and Cipla to report
below-industry growth in India. Divis is most likely to spring positive surprise while
Ranbaxy and DRL are most likely to disappoint versus our estimates on the operational
front. Our preferred sector picks are SUN, Lupin and Divis.
Lower India growth to impact sales growth in 2QFY12E (see Exhibit 1)
We expect most of the generic companies to continue to report muted India sales growth, a trend
witnessed in 1QFY12. We expect Cadila, Cipla, DRL, Glaxo and Ranbaxy to report below-industry
growth in India due to (1) high base last year and (2) poor underlying growth. We also think
Glenmark will report lower India growth qoq although above industry. We believe Lupin and SUN
will report higher qoq growth rates in India at 18% and 20% versus 17% and 18% reported in
1QFY12, respectively. On a reported basis, however, SUN will report 12% growth in India in
2QFY12E.
We estimate higher-than-20% sales growth only for Sun Pharma, Divis in 2QFY12E
We expect Cipla and Glaxo Pharma to report total sales growth at less than 14% due to poor India
growth. However, we expect a sequential pick-up in US sales for DRL, Cadila and Glenmark and in
international sales for Ranbaxy to help them report sales growth between 14% and 20%. We
estimate higher-than-20% sales growth for Sun and Divis at 33-35% and believe a lower sales
growth in 2QFY12E for Sun could lead to revision in its FY2012E sales growth guidance of 28-30%.
Qoq improvement in margin likely though still expected to remain down/flat yoy
We expect qoq improvement in EBITDA margin for most companies except Glenmark (see Exhibit
2). We expect Glenmark to report EBITDA margin of 21% versus 24.5% in 1QFY12. We believe
(1) a pick-up in US sales and (2) higher proportion of sales from India in 2QFY12E than in 1QFY12
will result in better margin sequentially for most companies. However, yoy margin is expected to
be either down or flat for most companies except Ranbaxy and Divis due to their low base last year.
We expect lower-than-15% PAT growth on operational front for most companies except Divis
We expect most companies except Divis to report less-than-15% PAT growth due to (1) muted
sales growth, (2) margin flat or marginally down yoy, (3) higher yoy interest cost for some such as
Ranbaxy, DRL, Glenmark, and (4) higher tax rates. We expect Divis to report 30% PAT growth
even after factoring in 20% tax rates this year due to (1) low base of sales last year and (2) lower
margin last year. We expect PAT to remain flat yoy for DRL due to sales growth of 14% being
counteracted by (1) higher SG&A spend leading to EBITDA margin remaining flat yoy, (2) higher
interest cost, and (3) higher tax rates.
Lupin + Glenmark to report licensing income this quarter
We expect Glenmark and Lupin to report high PAT growth yoy (before exceptionals) driven by
licensing income of US$25 mn from Sanofi Aventis and US$20 mn from Medicis, respectively,
which we include in other income. Excluding this income, we expect PAT growth to be muted at
11% and 7%, respectively. Glenmark will also report payment of US$29 mn to Paul Partners as
extraordinary expense this quarter.
Ranbaxy and Jubilant likely to report substantial translational losses
Since the average USD/INR rate in 2QFY12 was between 45.5 and 46 which remains lower
than average rate in 2QFY11, we expect limited operational gains from Rupee depreciation
this quarter. However, we expect Ranbaxy and Jubilant to report substantial translational
losses on their forex loans and hedges (only for Ranbaxy) as Rupee closed at 49 as of end-
2QFY12 versus 44.7 as of end-1QFY12.
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