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2Q Preview – Lukewarm
Quarter on a High Base
Quick Comment – We expect rather lukewarm 2Q
results: For our coverage universe, we estimate 5.3%
YoY sales growth, 60bp OPM expansion to 21.8%, and
3% YoY net profit growth (down 17% QoQ). Sun’s
(Forest, Protonix, Eloxatin) and Ranbaxy’s high base
(both YoY and QoQ) are making sector comps difficult.
Excluding them, we estimate 14.4% YoY and 13% QoQ
earnings growth for the sector.
Corporate performance: We expect strong results
from LPC (Lotrel, strong base business), DRL (stable
base business, tacro market share gains), BIOS (higher
tacro sales), and GSK (seasonally strong quarter). We
see a Ffat quarter for Cipla and de-growth for Ranb and
Sun. Our estimates do not include Taro consolidation
for Sun and MTM/investment sale gains for Ranb.
What to look out for: 1) Sun – Taxotere and Taro
outlook, impact of niche launches (Exelon, bupropion
SR, Optivar etc). 2) Ranbaxy – update on FDA/DoJ
issues from new CEO, base business earnings power
(since no niche product this quarter) and Aricept
commentary. 3) DRL – Allegra D-24 and Fonda update,
bio-similar portfolio plans, GSK deal progression. 4)
BIOS – more color on PFE insulin deal. 5) LPC – OC
and bio-similar portfolio update. Also, forex corporate
strategies in view of sharp INR appreciation (vs. USD).
Investment thesis: We expect a two-prong earnings
progression – a steady scale up in base business and
continuing (lucrative) product flow for the US market
(Aricept, fonda, Taxotere, Accolate, D-24, Prandin). We
are OW (in order of preference) on DRL, Sun, LPC and
Ranb. We are EW on Cipla and GSK on rich valuations
and UW Biocon.
Results calendar announced so far: BIOS
(October 22), Piramal H (October 22), DRL (October 23),
Sun (October 30), Lupin (November 1), and Ranb
(November 11).
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