Expect muted Q3 numbers… for healthcare coverage :: ICICI Securities, report

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Expect muted Q3 numbers…
During the quarter, companies under I-Direct healthcare coverage are
expected to post growth of 10.5% YoY to | 28190 crore. The growth rate is
the slowest in the last many quarters. But for the traction from domestic
formulations and consolidation of the acquired businesses, growth could
have been even lower (excluding Actavis and Elder acquisitions by
Aurobindo and Torrent, respectively, the growth would be ~8% YoY to
| 27562 crore). Consolidated US sales (from select pack) are likely to grow
6% YoY to | 8362 crore. This temperance is mainly on the back of a high
base, increased competition in existing products and a slowdown in
product approvals from the USFDA. Indian formulations from a select pack
are likely to grow 21% YoY to | 6083 crore on the back of new launches and
normalcy in trade channels post NLEM price implementation. Currency
headwinds from emerging economies such as Russia, Brazil and Venezuela
are also likely to impact growth from these markets for a few of the universe
companies such as Dr Reddy’s and Glenmark.
Among players, Ajanta Pharma, Cipla, Torrent and Aurobindo are expected
to do well on the back of strong growth in the domestic market and
consolidation of the acquired businesses. On the other hand, a few of the
frontline pharma companies like Lupin, Dr Reddy’s and Glenmark are likely
to be laggards on account of the slowdown in USFDA approvals and
adverse currency movement.
In another instance of MNC patent rejection, India's patent office has
rejected an application from US based Gilead Sciences Inc for its hepatitis C
drug Sovaldi, paving the way for local drug makers to launch cheaper
generic versions of the drug. The patent office's order said Gilead's request
for Sovaldi, which costs US$84,000 for a 12-week course in the US, was
rejected on the basis of the fact that minor and cosmetic changes in the
molecule did not improve the efficacy of the drug.
In a strategic shift from an earlier stance of growth from establishing tertiary
hospital chains, Apollo Hospitals acquired Nova Specialty Hospitals, which
is a secondary hospital chain. The chain of 11 facilities of Nova is spread
across eight cities, and will add to Apollo's network of 45 modular operation
theatres. Acquisition will also add over 300 beds to the current strength of
~9000 beds. But more importantly, it reflects the focus on nursing homes
acquisitions, a deviation from the earlier stance of greenfield expansion.
Finally, the Indian pharmaceutical market (IPM) registered strong growth of
13.6% YoY to | 7243 crore for December. The YoY growth was driven by- 1)
price hikes - 5.3%, 2) volume growth - 5.1% and 3) new product launches -
4.1%.
Stocks likely to consolidate post Q3 numbers…
The healthcare index maintained its outperformance in CY14 vis-à-vis the
broader market (fifth in a row), backed by superior earnings growth and PE
expansion. As the Q3 earnings season approaches, we expect some
slowdown in most stocks on the back of altered earnings expectations.
Even a moderate correction cannot be ruled out, which, we believe is
warranted in some stocks that are running ahead of valuations. Going
ahead, product approvals and currency fluctuation are likely to weigh on
earnings in the near term as will the stock performance. However, long term
growth prospects continue to remain healthy.

LINK
http://content.icicidirect.com/mailimages/IDirect_HealthCheck_Jan15.pdf