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India Equity Research Reports, IPO and Stock News
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We expect bumper earnings growth in Q3FY12 (43% YoY) led by strong
uptick in the domestic market, favourable currency movement and niche
launches in US (Lipitor/Zyprexa). Margins (ex‐RBXY/ARBP) are expected to
improve by 230bps YoY. We see strong traction in Sun Pharma (SUNP), Dr.
Reddy’s (DRRD) and Cipla among large caps and Torrent in the mid‐cap
space. Aurobindo (ARBP)/Cadila (CDH) is expected to relatively
underperform, though QoQ ARBP should report improved performance.
We raise coverage earnings by 1‐4% for FY13E to factor in revised
conversion rate of INR50 (earlier INR46) offset by lower DEPB benefits. We
upgrade SUNP from ‘HOLD’ to ‘BUY’.
Strong domestic market recovery, firm US sales to boost growth
We expect revenue growth of 23% YoY led by strong recovery in domestic market and
firm sales in US generics. Q3FY12 kicks‐off blockbuster patent cliff opportunity with
Lipitor, Caduet and Zyprexa contributing to higher growth and profitability. We estimate
USD55bn patent opportunity over the next 18 months which will drive strong earnings
momentum for Indian generics. We expect margins to increase by 328bps YoY (230bps
ex‐RBXY/ARBP). ARBP’s margin is likely to recover QoQ from higher revenue growth;
however, YoY it will remain subdued due to operating issues and higher cost base.
Sun Pharma and Dr. Reddy’s on firm footing
We expect SUNP and DRRD to report strong earnings growth led by higher realizations
and niche product launches in US. DRRD’s growth in US at 96% YoY is led by the launch of
Zyprexa and full quarter impact of Fondaparinux. RBXY’s profits will increase sharply on
launch of Lipitor and Caduet. Lupin’s growth in branded generics will remain strong while
US generics will see better traction with receding impact of Lotrel and launch of OCs.
Torrent and Cipla will reap strong benefit of favourable currency movement. GNP’s
revenue growth will remain strong while its earnings growth will be impacted by increase
in R&D and other fixed costs.
Valuations: Higher currency peg to lift earnings by 1‐4%
The INR has depreciated 19‐8% against USD and EUR, respectively, over July‐Dec which is
positive for Indian pharma companies given that they are net exporters. Further, most
companies are expected to enter into hedges (3‐4 quarters) at current rate which will
benefit future realization. Thus, if we peg the rupee at 50/USD against our current
working rate of INR46, FY13E earnings increase by 1‐4% for coverage stocks. In addition,
we have now included lower DEPB benefits for our coverage universe. We believe the
recent amendments by MCA, to capitalize MTM losses, could lead to reversal of loses
reported during H1FY12 by CDH, RBXY, Jubilant and Dishman. We remain positive on
Lupin, Dr. Reddy’s, Cipla and Glenmark.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect bumper earnings growth in Q3FY12 (43% YoY) led by strong
uptick in the domestic market, favourable currency movement and niche
launches in US (Lipitor/Zyprexa). Margins (ex‐RBXY/ARBP) are expected to
improve by 230bps YoY. We see strong traction in Sun Pharma (SUNP), Dr.
Reddy’s (DRRD) and Cipla among large caps and Torrent in the mid‐cap
space. Aurobindo (ARBP)/Cadila (CDH) is expected to relatively
underperform, though QoQ ARBP should report improved performance.
We raise coverage earnings by 1‐4% for FY13E to factor in revised
conversion rate of INR50 (earlier INR46) offset by lower DEPB benefits. We
upgrade SUNP from ‘HOLD’ to ‘BUY’.
Strong domestic market recovery, firm US sales to boost growth
We expect revenue growth of 23% YoY led by strong recovery in domestic market and
firm sales in US generics. Q3FY12 kicks‐off blockbuster patent cliff opportunity with
Lipitor, Caduet and Zyprexa contributing to higher growth and profitability. We estimate
USD55bn patent opportunity over the next 18 months which will drive strong earnings
momentum for Indian generics. We expect margins to increase by 328bps YoY (230bps
ex‐RBXY/ARBP). ARBP’s margin is likely to recover QoQ from higher revenue growth;
however, YoY it will remain subdued due to operating issues and higher cost base.
Sun Pharma and Dr. Reddy’s on firm footing
We expect SUNP and DRRD to report strong earnings growth led by higher realizations
and niche product launches in US. DRRD’s growth in US at 96% YoY is led by the launch of
Zyprexa and full quarter impact of Fondaparinux. RBXY’s profits will increase sharply on
launch of Lipitor and Caduet. Lupin’s growth in branded generics will remain strong while
US generics will see better traction with receding impact of Lotrel and launch of OCs.
Torrent and Cipla will reap strong benefit of favourable currency movement. GNP’s
revenue growth will remain strong while its earnings growth will be impacted by increase
in R&D and other fixed costs.
Valuations: Higher currency peg to lift earnings by 1‐4%
The INR has depreciated 19‐8% against USD and EUR, respectively, over July‐Dec which is
positive for Indian pharma companies given that they are net exporters. Further, most
companies are expected to enter into hedges (3‐4 quarters) at current rate which will
benefit future realization. Thus, if we peg the rupee at 50/USD against our current
working rate of INR46, FY13E earnings increase by 1‐4% for coverage stocks. In addition,
we have now included lower DEPB benefits for our coverage universe. We believe the
recent amendments by MCA, to capitalize MTM losses, could lead to reversal of loses
reported during H1FY12 by CDH, RBXY, Jubilant and Dishman. We remain positive on
Lupin, Dr. Reddy’s, Cipla and Glenmark.
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