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US opportunities and INR
depreciation to drive
operational performance
Expect revenue growth of 24% y-y for the sector
Overall, we expect revenue growth of 24% y-y for the sector. Growth, in
our view, will be driven by specific US opportunities, particularly Lipitor
(Ranbaxy) and Zyprexa (Dr Reddy's) and INR depreciation. We expect
some pickup in domestic formulation, but also forecast some slowdown in
certain emerging markets on tight liquidity conditions. We expect strong
revenue growth for Ranbaxy, Dr Reddy's, Cipla, Glenmark, Sun Pharma
and Jubilant.
EBITDA growth at 57.6% y-y for the sector
We factor in 558bps improvement in EBITDA margin y-y for the sector,
due to large exclusivities such as Lipitor and Zyprexa. Excluding these, we
expect EBITDA margin to expand 206bps y-y and EDITDA growth of
27.5% y-y. We expect higher sales volumes and INR depreciation to help
offset cost pressures from higher SG&A and R&D, resulting in margin
expansion.
MTM losses could adversely impact net profit; some companies may
lower MTM losses on rule 46A
We have built in MTM losses on derivatives and forex loans in line with
that reported by firms in 2QFY12. Further, we have included a provision of
USD500mn for Ranbaxy as a penalty for settlement of DoJ issues.
Excluding these losses, we expect the sector to report 87%y-y growth in
net profit. There is a possibility that the quantum of MTM losses on forex
loans could be lower, as the Corporate Affairs Ministry has issued a new
rule Rule 46A, which extends the sunset clause on Rule 46 from March
2012 to March 2020. This lets companies amortise their losses over a
longer period.
Our top picks from a 12-month perspective are Lupin and Glenmark;
Cipla could surprise positively in the quarter on INR depreciation
We have Buy recommendations on Lupin, Glenmark, Dr Reddy's, Jubilant
LifeSciences and Cadila. Lupin and Glenmark are our top picks in the
sector. INR depreciation could benefit Cipla during the quarter, and thus
the firm could record strong sequential improvement, in our view.
3QFY12- Expect strong y-y growth
We expect strong operational performance for the Indian pharmaceutical sector for
3QFY12. Overall, we expect revenue growth at 24% y-y for the sector. The quarter
witnessed some large generic launches in the US. Exclusivities on Lipitor (Ranbaxy),
Zyprexa (Dr Reddy's) and Malarone (Glenmark) will positively impact growth rates in the
quarter, in our view. We expect some revival in growth in domestic formulation, which
has remained muted in the previous two quarters. We expect depreciation in the Indian
rupee against the export currencies to present an additional tailwind for the sector.
Among our coverage universe, Cipla and Jubilant, which have relatively lower hedging
positions, will be key beneficiaries of INR depreciation, in our view. The average
INR/USD rate for the quarter is 51.13, which is the highest-ever quarterly average and
compares to 45.80 in 2QFY12 and 44.93 in 3QFY11. In certain emerging markets, we
believe there could be a slowdown due to liquidity constraints.
We expect some cost pressures on higher SG&A and R&D. However, strong revenue
growth and product-specific opportunities should result in expansion of margins, in our
view. We expect EBITDA margin for the sector to expand by 5.6% y-y and estimate
EBITDA growth at 57.6% y-y. Even adjusted for Lipitor and Zyprexa exclusivity, we
expect EBITDA margin expansion of 206bps y-y and EBITDA growth of 27.5% y-y.
Earnings growth could be adversely impacted by MTM losses on forex loans and
derivatives. We have factored in losses in line with what was reported in the previous
quarter. However, there is a possibility of the quantum of MTM losses on forex loans
could be lower, as the Corporate Affairs Ministry has issued a new rule – Rule 46A,
which extends the sunset clause on Rule 46 from March 2012 to March 2020. This will
allow companies to amortise the losses over longer period.
We have Buy recommendations on Lupin, Glenmark, Dr Reddy's, Jubilant LifeSciences
and Cadila. Lupin and Glenmark are our top picks in the sector. INR depreciation could
benefit Cipla during the quarter, and thus the company could record strong sequential
improvement, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
US opportunities and INR
depreciation to drive
operational performance
Expect revenue growth of 24% y-y for the sector
Overall, we expect revenue growth of 24% y-y for the sector. Growth, in
our view, will be driven by specific US opportunities, particularly Lipitor
(Ranbaxy) and Zyprexa (Dr Reddy's) and INR depreciation. We expect
some pickup in domestic formulation, but also forecast some slowdown in
certain emerging markets on tight liquidity conditions. We expect strong
revenue growth for Ranbaxy, Dr Reddy's, Cipla, Glenmark, Sun Pharma
and Jubilant.
EBITDA growth at 57.6% y-y for the sector
We factor in 558bps improvement in EBITDA margin y-y for the sector,
due to large exclusivities such as Lipitor and Zyprexa. Excluding these, we
expect EBITDA margin to expand 206bps y-y and EDITDA growth of
27.5% y-y. We expect higher sales volumes and INR depreciation to help
offset cost pressures from higher SG&A and R&D, resulting in margin
expansion.
MTM losses could adversely impact net profit; some companies may
lower MTM losses on rule 46A
We have built in MTM losses on derivatives and forex loans in line with
that reported by firms in 2QFY12. Further, we have included a provision of
USD500mn for Ranbaxy as a penalty for settlement of DoJ issues.
Excluding these losses, we expect the sector to report 87%y-y growth in
net profit. There is a possibility that the quantum of MTM losses on forex
loans could be lower, as the Corporate Affairs Ministry has issued a new
rule Rule 46A, which extends the sunset clause on Rule 46 from March
2012 to March 2020. This lets companies amortise their losses over a
longer period.
Our top picks from a 12-month perspective are Lupin and Glenmark;
Cipla could surprise positively in the quarter on INR depreciation
We have Buy recommendations on Lupin, Glenmark, Dr Reddy's, Jubilant
LifeSciences and Cadila. Lupin and Glenmark are our top picks in the
sector. INR depreciation could benefit Cipla during the quarter, and thus
the firm could record strong sequential improvement, in our view.
3QFY12- Expect strong y-y growth
We expect strong operational performance for the Indian pharmaceutical sector for
3QFY12. Overall, we expect revenue growth at 24% y-y for the sector. The quarter
witnessed some large generic launches in the US. Exclusivities on Lipitor (Ranbaxy),
Zyprexa (Dr Reddy's) and Malarone (Glenmark) will positively impact growth rates in the
quarter, in our view. We expect some revival in growth in domestic formulation, which
has remained muted in the previous two quarters. We expect depreciation in the Indian
rupee against the export currencies to present an additional tailwind for the sector.
Among our coverage universe, Cipla and Jubilant, which have relatively lower hedging
positions, will be key beneficiaries of INR depreciation, in our view. The average
INR/USD rate for the quarter is 51.13, which is the highest-ever quarterly average and
compares to 45.80 in 2QFY12 and 44.93 in 3QFY11. In certain emerging markets, we
believe there could be a slowdown due to liquidity constraints.
We expect some cost pressures on higher SG&A and R&D. However, strong revenue
growth and product-specific opportunities should result in expansion of margins, in our
view. We expect EBITDA margin for the sector to expand by 5.6% y-y and estimate
EBITDA growth at 57.6% y-y. Even adjusted for Lipitor and Zyprexa exclusivity, we
expect EBITDA margin expansion of 206bps y-y and EBITDA growth of 27.5% y-y.
Earnings growth could be adversely impacted by MTM losses on forex loans and
derivatives. We have factored in losses in line with what was reported in the previous
quarter. However, there is a possibility of the quantum of MTM losses on forex loans
could be lower, as the Corporate Affairs Ministry has issued a new rule – Rule 46A,
which extends the sunset clause on Rule 46 from March 2012 to March 2020. This will
allow companies to amortise the losses over longer period.
We have Buy recommendations on Lupin, Glenmark, Dr Reddy's, Jubilant LifeSciences
and Cadila. Lupin and Glenmark are our top picks in the sector. INR depreciation could
benefit Cipla during the quarter, and thus the company could record strong sequential
improvement, in our view.
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