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Another Strong Quarter Likely
We expect another strong quarter for the Indian pharmaceuticals sector led by revival in
domestic market growth, launch of products having marketing exclusivity in the US and
integration of recently acquired companies. Overall, we expect revenue/EBITDA/PAT to
grow 16%/44%/23%, respectively. After the tepid performance in the 9MFY12 period,
domestic market growth picked up in January and February 2012, at 16.5% and 18.4%,
respectively, as per the recent All India Organisation of Chemists and Druggists’
(AIOCD) AWACS data. On the other hand, despite a 4% sequential appreciation in the
rupee against the greenback, US revenues are likely to benefit from niche launches like
Lipodox (Sun Pharmaceutical Industries), Geodon (Lupin Laboratories), and Lexapro
(Cipla). Also, integration of recently acquired companies like IROM (Lupin Laboratories)
and Biochem (Cadila Healthcare) will aid revenue growth. After the recent
outperformance (BSE Healthcare Index’s 13% returns versus BSE Sensex, 12% during
4QFY12) and higher valuation, we believe 4QFY12 earnings assume further importance
and leave little room for error. We prefer a selective approach and rate Torrent
Pharmaceuticals as our top pick.
Revival in domestic growth: Following the pick-up in industry growth, we expect revival in
domestic growth for Cipla and Torrent owing to the recent restructuring undertaken by them.
On the other hand, Lupin (strong chronic focus + Eli Lilly portfolio), Cadila (Biochem
acquisition) and Sun Pharma (chronic focus) are likely to report better than industry growth. We
expect another quarter of moderate growth for Glenmark Pharmaceuticals owing to inventory
rationalisation.
Launch of products with marketing exclusivity in the US: Despite sequential appreciation
in the rupee against the US dollar during the quarter, launch of exclusive products i.e. Lipodox
(Sun Pharma), Geodon (Lupin) and Lexapro (Cipla) will drive US revenues for these
companies. However, higher price erosion in Taxotere and lack of new product approvals will
hurt revenues of Cadila. Glenmark’s performance will largely depend on the recent launch of
oral contraceptives.
Improvement in margins: Higher contribution from the domestic market and less competitive
launches in the US is expected to lead to strong improvement in margins of all companies
under coverage universe although, sequentially, we believe margins would be negatively
impacted by rupee appreciation. We expect Glenmark to report Rs700mn of forex gains on its
outstanding loans during the quarter, while Cadila is likely to reverse some of its earlier forex
losses that were routed through its balance sheet.
What to watch out for: Recent data from the AIOCD is encouraging and company
managements’ comments on the same will be closely monitored. Also, we seek clarity on tax
guidance, updates on product launches in the US, the impact of contraction in EU/emerging
market economies and the outlook on margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Another Strong Quarter Likely
We expect another strong quarter for the Indian pharmaceuticals sector led by revival in
domestic market growth, launch of products having marketing exclusivity in the US and
integration of recently acquired companies. Overall, we expect revenue/EBITDA/PAT to
grow 16%/44%/23%, respectively. After the tepid performance in the 9MFY12 period,
domestic market growth picked up in January and February 2012, at 16.5% and 18.4%,
respectively, as per the recent All India Organisation of Chemists and Druggists’
(AIOCD) AWACS data. On the other hand, despite a 4% sequential appreciation in the
rupee against the greenback, US revenues are likely to benefit from niche launches like
Lipodox (Sun Pharmaceutical Industries), Geodon (Lupin Laboratories), and Lexapro
(Cipla). Also, integration of recently acquired companies like IROM (Lupin Laboratories)
and Biochem (Cadila Healthcare) will aid revenue growth. After the recent
outperformance (BSE Healthcare Index’s 13% returns versus BSE Sensex, 12% during
4QFY12) and higher valuation, we believe 4QFY12 earnings assume further importance
and leave little room for error. We prefer a selective approach and rate Torrent
Pharmaceuticals as our top pick.
Revival in domestic growth: Following the pick-up in industry growth, we expect revival in
domestic growth for Cipla and Torrent owing to the recent restructuring undertaken by them.
On the other hand, Lupin (strong chronic focus + Eli Lilly portfolio), Cadila (Biochem
acquisition) and Sun Pharma (chronic focus) are likely to report better than industry growth. We
expect another quarter of moderate growth for Glenmark Pharmaceuticals owing to inventory
rationalisation.
Launch of products with marketing exclusivity in the US: Despite sequential appreciation
in the rupee against the US dollar during the quarter, launch of exclusive products i.e. Lipodox
(Sun Pharma), Geodon (Lupin) and Lexapro (Cipla) will drive US revenues for these
companies. However, higher price erosion in Taxotere and lack of new product approvals will
hurt revenues of Cadila. Glenmark’s performance will largely depend on the recent launch of
oral contraceptives.
Improvement in margins: Higher contribution from the domestic market and less competitive
launches in the US is expected to lead to strong improvement in margins of all companies
under coverage universe although, sequentially, we believe margins would be negatively
impacted by rupee appreciation. We expect Glenmark to report Rs700mn of forex gains on its
outstanding loans during the quarter, while Cadila is likely to reverse some of its earlier forex
losses that were routed through its balance sheet.
What to watch out for: Recent data from the AIOCD is encouraging and company
managements’ comments on the same will be closely monitored. Also, we seek clarity on tax
guidance, updates on product launches in the US, the impact of contraction in EU/emerging
market economies and the outlook on margins.
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