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India Equity Research Reports, IPO and Stock News
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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The pharma universe reported all-round performance in terms of growth and profitability. Revenue growth was strong at 26% YoY (6% higher than estimate), led by outperformance in US and India. Operating margins expanded 390bps (up 270bps) YoY, reflecting the benefits of an improved product mix and favourable currency movement. Despite strong operating performance, PAT growth at 33% YoY was impacted by higher taxes and depreciation cost. Owing to rich valuations and higher risk appetite, pharma universe has underperformed the market. We continue to prefer a more stock-specific approach and prefer Lupin in large cap and Glenmark and Torrent Pharma among mid caps.
All-round performance
Outperformance was seen across the coverage universe, barring a few companies. While Cipla’s operating performance was below expectation due to export formulation, Ranbaxy’s base business continued to remain a cause of concern. Sun Pharma (SUNP), Dr. Reddy’s and Lupin reported robust numbers aided by strong growth in US and improved product mix. Among mid caps, IPCA Labs and Torrent Pharma (Torrent) put up a strong operating show despite slower growth in the domestic market. Aurobindo’s (ARBP) performance posted sequential improvement, though YoY, it dipped 56%. Cadila (CDH), among large caps, reported good recovery in domestic market.
US momentum to remain strong
Growth in the US was strong (up 60% YoY ex-RBXY) and had a positive impact from three factors: (a) higher patent cliff; (b) higher approvals; and (c) supply issues due to manufacturing woes at Teva and Hospira. Further, the INR depreciation was the icing on the cake, leading to higher realisations. We expect a sustained growth momentum in the US in the next four-five quarters, with a line up of interesting launches including Geodon, Seroquel, Lexapro, Actos and Plavix, among others.
Strong growth visibility till FY13; traction may slow down in FY14
Earnings momentum across the coverage universe has been strong led by: (i) strong out performance in the US; (ii) sustained traction in the domestic market; and (iii) improved realisations. Going forward, we expect the earnings traction to remain strong till FY13; however, pace of growth is likely to decelerate in FY14.
Valuations: Prefer stocks with sustainable growth opportunities
We are positive on long-term growth prospects of the domestic market. On the US front, though Indian companies are well placed to capitalise the huge growth opportunity, pace of growth is likely to slow down beyond FY13 owing to fewer drugs going off patent. We prefer companies with strong pipeline and differentiated portfolio to sustain growth beyond FY13. Owing to rich valuations, strong outperformance in the past three years and increased risk appetite, we expect some underperformance in the sector. We remain cautious and prefer a more stock-specific approach.
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