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Mixed bag
Domestic slowdown and US launches to play out in topline
We expect 14% YoY growth and 3% QoQ growth in our coverage
universe in Q3FY12. The growth in the sector to have major
contributions from higher USD conversion value, launches in US and
expansion in semi-regulated market. The benefits from USD
appreciation would be partially mitigated by declining currencies of
emerging market exports, significant import of raw materials and
slowdown in India formulations. We however expect improvement in
domestic sales for Dr Reddys’ Lab, Glenmark, and Cipla in Q3FY12. The
growth in operating margin however, has to cope with higher
increase in key costs items. The lag effect of higher raw material prices,
rising employee costs with sticky inflation, and increasing forex debt
with higher interest costs would increase operating and financial
leverage in the sector. Ranbaxy and Lupin would benefit from para-IV
launches and inorganic growth.
EBITDA to be maintained sequentially, forex to play spoilsport
With high inflation rate and crude prices, we expect 15% YoY growth
and 5% QoQ decline in EBITDA in Q3FY12. Ranbaxy, Sun Pharma,
Cipla, and Dr Reddy’s Lab are major contributors of sector EBITDA. Sun
Pharma’s robust contribution is attributed to Taro’s growth in US while
others are expected to grow from para-IV launches in US.
Valuation remains high in comparison with core EPS
We are underweight on the sector as core-EPS valuations remain high
despite price correction. With aggravation of macro fundamentals in
India, we expect PEx compression for the sector, though it would
maintain premium valuation vis-à-vis other sectors due to inherent
defensive nature. The majority of large-cap companies have faced
stagnation in price appreciation over the last six months. We observe
that majority companies in our coverage have moderate price
correction except Ranbaxy and Cipla as expected. While risk-return
matrix remains unfavourable for overall sector, we believe that CRAMS
companies, of which Jubilant is in the forefront, have an edge in
valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mixed bag
Domestic slowdown and US launches to play out in topline
We expect 14% YoY growth and 3% QoQ growth in our coverage
universe in Q3FY12. The growth in the sector to have major
contributions from higher USD conversion value, launches in US and
expansion in semi-regulated market. The benefits from USD
appreciation would be partially mitigated by declining currencies of
emerging market exports, significant import of raw materials and
slowdown in India formulations. We however expect improvement in
domestic sales for Dr Reddys’ Lab, Glenmark, and Cipla in Q3FY12. The
growth in operating margin however, has to cope with higher
increase in key costs items. The lag effect of higher raw material prices,
rising employee costs with sticky inflation, and increasing forex debt
with higher interest costs would increase operating and financial
leverage in the sector. Ranbaxy and Lupin would benefit from para-IV
launches and inorganic growth.
EBITDA to be maintained sequentially, forex to play spoilsport
With high inflation rate and crude prices, we expect 15% YoY growth
and 5% QoQ decline in EBITDA in Q3FY12. Ranbaxy, Sun Pharma,
Cipla, and Dr Reddy’s Lab are major contributors of sector EBITDA. Sun
Pharma’s robust contribution is attributed to Taro’s growth in US while
others are expected to grow from para-IV launches in US.
Valuation remains high in comparison with core EPS
We are underweight on the sector as core-EPS valuations remain high
despite price correction. With aggravation of macro fundamentals in
India, we expect PEx compression for the sector, though it would
maintain premium valuation vis-à-vis other sectors due to inherent
defensive nature. The majority of large-cap companies have faced
stagnation in price appreciation over the last six months. We observe
that majority companies in our coverage have moderate price
correction except Ranbaxy and Cipla as expected. While risk-return
matrix remains unfavourable for overall sector, we believe that CRAMS
companies, of which Jubilant is in the forefront, have an edge in
valuations.
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