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Pharmaceuticals
India
3QFY12E preview. We expect a sequentially better quarter for companies in our
coverage with (1) strong yoy reported PAT growth of above 30% for DRL, SUN, Divis,
Cipla and Glaxo; however, (2) expect forex to act as a dampener leading to reported
PAT decline for Glenmark, despite strong results, as well as for Cadila. We expect
strong yoy sales growth of 31% in 3QFY12E for generic companies under our coverage.
However, excluding exclusivity sales, we expect base business performance to remain
muted for Ranbaxy and DRL. SUN Pharma is most likely to spring a positive surprise
versus our estimates. Our preferred sector picks—SUN and Lupin.
We expect strong yoy sales growth of 31% in 3QFY12E for generic companies (see Exhibit 1)
We expect strong overall sales growth for most generic companies under coverage driven by
(1) higher sales realization in Rupee terms, (2) sequential improvement in India sales growth and
(3) sequential build-up in US sales driven by recent product launches.
We expect strong yoy sales growth in US across all the generic companies driven by (1) build-up
of sales from product approvals received YTD. Barring Cadila and Ranbaxy, whose facilities are
plagued by US regulatory issues, the other four generic companies under coverage have got a
sizeable number of ANDA approvals in 9M2011 with SUN Pharma leading the tally with 19
approvals (see Exhibit 5), and (2) exclusivity/limited competition in US—(a) Lipitor/Caduet for
Ranbaxy (we factor US$242 mn), (b) Zyprexa for DRL (we factor US$35 mn), (c) Malarone for
Glenmark (launched on Sep 15, 2011) and (d) Fortamet ER for Lupin (launched in end-Sept
2011).
We also expect most companies to report sequential improvement in domestic sales growth,
however, factor lower-than-industry domestic sales growth for Cipla, Cadila, DRL and Ranbaxy
and expect Lupin, Glenmark (although lower sequentially) and SUN to report higher-thanindustry
India sales growth. On a reported basis, we expect SUN to report 12% sales growth in
India while adjusted for VAT and discontinuation of the third-party manufacturing business, we
expect domestic sales growth at 20%. On a reported basis, we expect Lupin to report 24.7%
sales growth in India driven by (1) 18% core business growth, same as that seen in 2QFY12,
and (2) Rs270 mn contribution from the Eli Lilly marketing deal.
DRL, Ranbaxy results to include significant exclusivity sales, base business to remain weak
Excluding exclusivity (we factor US$242 mn), we expect sales growth to remain muted for Ranbaxy
at 11% in 3QFY12E versus 10% in 2QFY12. We build in some sequential improvement in
operating margin (including other operating income) for Ranbaxy at 10.8% in 3QFY12E versus 9%
reported in 2QFY12 and factor in improvement in sales in key emerging markets of India and
Africa, which is yet to be seen YTD. We factor in sales of US$35 mn of Zyprexa in 3QFY12E for
DRL. Excluding these sales, we expect DRL to report healthy base business sales growth of around
30% versus 21% in 2QFY12. However, we expect base business operating margin to remain
muted at 20.6% in 3QFY12E versus 21.4% in 1HFY12 due to (1) higher R&D expenses, (2) higher
SG&A spend in Russia and India, and (3) lower DEPB benefits.
We expect strong yoy reported PAT growth of above 30% for DRL, SUN, Divis, Cipla, Glaxo
We expect strong PAT growth for the these companies driven by (1) healthy sales growth, (2) low
base last year for Divis and Cipla, and (3) sequential margin expansion built in for Glaxo, Cipla and
Divis (see Exhibit 2). However, we expect forex to act as a dampener for Glenmark, Ranbaxy and
Cadila. We factor in sequentially higher MTM forex losses in 3QFY12E versus those reported in
2QFY12 based on the end-exchange movement of around Rs3.8 versus Rs3.4 in 2QFY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pharmaceuticals
India
3QFY12E preview. We expect a sequentially better quarter for companies in our
coverage with (1) strong yoy reported PAT growth of above 30% for DRL, SUN, Divis,
Cipla and Glaxo; however, (2) expect forex to act as a dampener leading to reported
PAT decline for Glenmark, despite strong results, as well as for Cadila. We expect
strong yoy sales growth of 31% in 3QFY12E for generic companies under our coverage.
However, excluding exclusivity sales, we expect base business performance to remain
muted for Ranbaxy and DRL. SUN Pharma is most likely to spring a positive surprise
versus our estimates. Our preferred sector picks—SUN and Lupin.
We expect strong yoy sales growth of 31% in 3QFY12E for generic companies (see Exhibit 1)
We expect strong overall sales growth for most generic companies under coverage driven by
(1) higher sales realization in Rupee terms, (2) sequential improvement in India sales growth and
(3) sequential build-up in US sales driven by recent product launches.
We expect strong yoy sales growth in US across all the generic companies driven by (1) build-up
of sales from product approvals received YTD. Barring Cadila and Ranbaxy, whose facilities are
plagued by US regulatory issues, the other four generic companies under coverage have got a
sizeable number of ANDA approvals in 9M2011 with SUN Pharma leading the tally with 19
approvals (see Exhibit 5), and (2) exclusivity/limited competition in US—(a) Lipitor/Caduet for
Ranbaxy (we factor US$242 mn), (b) Zyprexa for DRL (we factor US$35 mn), (c) Malarone for
Glenmark (launched on Sep 15, 2011) and (d) Fortamet ER for Lupin (launched in end-Sept
2011).
We also expect most companies to report sequential improvement in domestic sales growth,
however, factor lower-than-industry domestic sales growth for Cipla, Cadila, DRL and Ranbaxy
and expect Lupin, Glenmark (although lower sequentially) and SUN to report higher-thanindustry
India sales growth. On a reported basis, we expect SUN to report 12% sales growth in
India while adjusted for VAT and discontinuation of the third-party manufacturing business, we
expect domestic sales growth at 20%. On a reported basis, we expect Lupin to report 24.7%
sales growth in India driven by (1) 18% core business growth, same as that seen in 2QFY12,
and (2) Rs270 mn contribution from the Eli Lilly marketing deal.
DRL, Ranbaxy results to include significant exclusivity sales, base business to remain weak
Excluding exclusivity (we factor US$242 mn), we expect sales growth to remain muted for Ranbaxy
at 11% in 3QFY12E versus 10% in 2QFY12. We build in some sequential improvement in
operating margin (including other operating income) for Ranbaxy at 10.8% in 3QFY12E versus 9%
reported in 2QFY12 and factor in improvement in sales in key emerging markets of India and
Africa, which is yet to be seen YTD. We factor in sales of US$35 mn of Zyprexa in 3QFY12E for
DRL. Excluding these sales, we expect DRL to report healthy base business sales growth of around
30% versus 21% in 2QFY12. However, we expect base business operating margin to remain
muted at 20.6% in 3QFY12E versus 21.4% in 1HFY12 due to (1) higher R&D expenses, (2) higher
SG&A spend in Russia and India, and (3) lower DEPB benefits.
We expect strong yoy reported PAT growth of above 30% for DRL, SUN, Divis, Cipla, Glaxo
We expect strong PAT growth for the these companies driven by (1) healthy sales growth, (2) low
base last year for Divis and Cipla, and (3) sequential margin expansion built in for Glaxo, Cipla and
Divis (see Exhibit 2). However, we expect forex to act as a dampener for Glenmark, Ranbaxy and
Cadila. We factor in sequentially higher MTM forex losses in 3QFY12E versus those reported in
2QFY12 based on the end-exchange movement of around Rs3.8 versus Rs3.4 in 2QFY12.
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