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Domestic formulations in a recovery phase
We expect the domestic pharma industry (DPI) growth to rebound to mid teens
(14%-15%) during FY13, from low double digit growth during FY12. Over the medium
term, we believe 14% growth to be sustainable. Our assumption is based on market
share gains in life-style related products; increased pace of new product launches
and higher penetration in tier III cities and rural markets.
We have observed sales force attrition levels to have come off their peaks while our
channel checks indicate gradual absorption of underlying inventory (anti-infectives
in particular). We expect Lupin and Sun Pharma to sustain market outperformance
(>16-17% growth) while others, Torrent and IPCA in particular, to witness a stronger
FY13E (albeit on low base) on the back of higher MR (marketing representative)
productivity and increased focus on faster growing segments. The National
Pharmaceutical Pricing Authority (NPPA) / Drug Price Control Order (DPCO) stance
to expand the drug coverage list for pricing control and recovery of arrears remains
an overhang.
Increased sales from US generics to propel growth
The key regulated markets - US and EU - are due to witness continuing mass
generic penetration. The upcoming patent cliff coupled with pro-generic healthcare
reforms places the US generic market in a sweet spot. On the contrary, stringent
price control interventions and intense competition makes Europe less a profitable
market. Our research highlights that CY12 will see the largest wave of US patent
expirations (for drugs worth USD 33.6bn) and Indian players - Dr. Reddy’s, Sun
Pharma and Lupin - are well-prepared to capitalize on a majority of these opportunities.
Despite intense competition and other growth constraints, we expect these
companies to be major beneficiaries (Refer Annexure - Generic Opportunities).
Favourable currency movement adding to conviction
The Rupee depreciation against the Dollar (14% in FY12) works in the favour of
most of these drug makers on account of higher realization on their export receivables
(eg. Sun Pharma, Dr. Reddy’s, Divi’s Labs, etc.). At the same time, select companies
will see this benefit being offset by high MTM losses on their forex liabilities (eg.
Ranbaxy, Cadila, Glenmark, etc.).
MNC Tie ups for EMs to aid topline growth FY13E onwards
Looming patent expiries (blockbuster products) and low R&D productivity (poor
visibility on product pipeline) has led to MNC companies increasing their thrust on
branded generics. The frequency of long-term supply deals with local generic
manufacturers as a result has increased. We anticipate revenue contribution from
some of the past deals entered into (Cadila – Abbott; Torrent- Astrazeneca) to aid
topline growth in FY13E and scale up thereafter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Domestic formulations in a recovery phase
We expect the domestic pharma industry (DPI) growth to rebound to mid teens
(14%-15%) during FY13, from low double digit growth during FY12. Over the medium
term, we believe 14% growth to be sustainable. Our assumption is based on market
share gains in life-style related products; increased pace of new product launches
and higher penetration in tier III cities and rural markets.
We have observed sales force attrition levels to have come off their peaks while our
channel checks indicate gradual absorption of underlying inventory (anti-infectives
in particular). We expect Lupin and Sun Pharma to sustain market outperformance
(>16-17% growth) while others, Torrent and IPCA in particular, to witness a stronger
FY13E (albeit on low base) on the back of higher MR (marketing representative)
productivity and increased focus on faster growing segments. The National
Pharmaceutical Pricing Authority (NPPA) / Drug Price Control Order (DPCO) stance
to expand the drug coverage list for pricing control and recovery of arrears remains
an overhang.
Increased sales from US generics to propel growth
The key regulated markets - US and EU - are due to witness continuing mass
generic penetration. The upcoming patent cliff coupled with pro-generic healthcare
reforms places the US generic market in a sweet spot. On the contrary, stringent
price control interventions and intense competition makes Europe less a profitable
market. Our research highlights that CY12 will see the largest wave of US patent
expirations (for drugs worth USD 33.6bn) and Indian players - Dr. Reddy’s, Sun
Pharma and Lupin - are well-prepared to capitalize on a majority of these opportunities.
Despite intense competition and other growth constraints, we expect these
companies to be major beneficiaries (Refer Annexure - Generic Opportunities).
Favourable currency movement adding to conviction
The Rupee depreciation against the Dollar (14% in FY12) works in the favour of
most of these drug makers on account of higher realization on their export receivables
(eg. Sun Pharma, Dr. Reddy’s, Divi’s Labs, etc.). At the same time, select companies
will see this benefit being offset by high MTM losses on their forex liabilities (eg.
Ranbaxy, Cadila, Glenmark, etc.).
MNC Tie ups for EMs to aid topline growth FY13E onwards
Looming patent expiries (blockbuster products) and low R&D productivity (poor
visibility on product pipeline) has led to MNC companies increasing their thrust on
branded generics. The frequency of long-term supply deals with local generic
manufacturers as a result has increased. We anticipate revenue contribution from
some of the past deals entered into (Cadila – Abbott; Torrent- Astrazeneca) to aid
topline growth in FY13E and scale up thereafter.
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