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Pharmaceuticals (S.Arun, Arvind Bothra)
Overweight
Key drivers of sector outlook
Following estimated 23% profit (including exclusivities) growth this year, we
expect sector earnings to grow 21% in FY13E, on the back of sustained strength
in India market and US business benefiting from patent expirations.
Demand for US generics market (about 28% of industry sales) will be driven by
(1) new product launches in niche segments like oral contraceptives,
dermatology, etc, (2) patent expirations worth US$45bn over the next two years.
Domestic formulations growth (est. 15%) will be dictated by increased
penetration in Tier 2/3 cities as well as improving field-force productivity.
Currency fluctuation is likely to affect profitability as most companies benefit in
case of rupee depreciation on the operating front. Most companies hedge 40-
60% of their future exports through forward covers, thereby reducing impact.
Sustenance of high value contracts as well as upcoming patent expiries will be
reflected through steady volume growth for outsourcing players. Divis is our
preferred pick in Indian CRAMs space on better execution and strong customer
relationships, backed by adequate capacity plan in place.
Stock specific growth triggers within our coverage universe include clearance of
USFDA issues and launch of generic Lipitor (Ranbaxy), scale-up of Oral
contraceptive products (Lupin) and resolution of FDA issues (Sun, Aurobindo).
Sector multiples have come off in line with the de-rating of broader markets. We
do not see a re-rating near-term, unless growth visibility improves.
Top Buys: Sun, Lupin, Divis
Top Underperformers: Cadila, GSK Pharma
Top stock pick: Sun Pharma
Largest Indian player in the US generic space (post Taro acquisition), with
superior execution and regulatory pipeline of 215 ANDAs filed with USFDA.
Over FY11-13E, we expect 24% profit CAGR on the back of 25% increase in
sales, driven by US market (including Taro), Para IV settlements and niche
launches in areas like dermatology & strong domestic business growth (18-20%).
Thrust on chronic therapy segment (78% of portfolio) and strong franchise with
doctors would enable it to outpace industry growth in domestic formulations.
Potential synergy benefits from Taro acquisition could lead to margin surprise.
High cash surplus (US$1bn) could be utilized for accretive inorganic expansion,
mainly in the US market.
Expect stock to sustain premium valuations owing to superior management,
strong balance sheet and growth profile.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pharmaceuticals (S.Arun, Arvind Bothra)
Overweight
Key drivers of sector outlook
Following estimated 23% profit (including exclusivities) growth this year, we
expect sector earnings to grow 21% in FY13E, on the back of sustained strength
in India market and US business benefiting from patent expirations.
Demand for US generics market (about 28% of industry sales) will be driven by
(1) new product launches in niche segments like oral contraceptives,
dermatology, etc, (2) patent expirations worth US$45bn over the next two years.
Domestic formulations growth (est. 15%) will be dictated by increased
penetration in Tier 2/3 cities as well as improving field-force productivity.
Currency fluctuation is likely to affect profitability as most companies benefit in
case of rupee depreciation on the operating front. Most companies hedge 40-
60% of their future exports through forward covers, thereby reducing impact.
Sustenance of high value contracts as well as upcoming patent expiries will be
reflected through steady volume growth for outsourcing players. Divis is our
preferred pick in Indian CRAMs space on better execution and strong customer
relationships, backed by adequate capacity plan in place.
Stock specific growth triggers within our coverage universe include clearance of
USFDA issues and launch of generic Lipitor (Ranbaxy), scale-up of Oral
contraceptive products (Lupin) and resolution of FDA issues (Sun, Aurobindo).
Sector multiples have come off in line with the de-rating of broader markets. We
do not see a re-rating near-term, unless growth visibility improves.
Top Buys: Sun, Lupin, Divis
Top Underperformers: Cadila, GSK Pharma
Top stock pick: Sun Pharma
Largest Indian player in the US generic space (post Taro acquisition), with
superior execution and regulatory pipeline of 215 ANDAs filed with USFDA.
Over FY11-13E, we expect 24% profit CAGR on the back of 25% increase in
sales, driven by US market (including Taro), Para IV settlements and niche
launches in areas like dermatology & strong domestic business growth (18-20%).
Thrust on chronic therapy segment (78% of portfolio) and strong franchise with
doctors would enable it to outpace industry growth in domestic formulations.
Potential synergy benefits from Taro acquisition could lead to margin surprise.
High cash surplus (US$1bn) could be utilized for accretive inorganic expansion,
mainly in the US market.
Expect stock to sustain premium valuations owing to superior management,
strong balance sheet and growth profile.
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