Pharmaceuticals - Q4FY12 Result Preview - Bumper earnings season :: Edelweiss PDF link

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

We expect robust earnings growth in Q4FY12 (41% YoY), led by strong uptick in the US market from niche launches such as Ziprasidone, Lipitor and Lexapro. Margins to improve 450bps YoY. Excluding the impact of one-offs we see revenue growth at 22% and earnings growth at 20%, for the coverage universe. We see strong traction in Sun Pharma (SUNP), Dr. Reddy’s (DRRD) and Cipla among large caps and Torrent in mid caps. Cadila (CDH) is expected to relatively underperform due to base effect of healthy billion and lower contribution from Hospira JV.

Recurring growth to sustain as one offs add icing to cake

We expect 31% growth in revenue led by high value Para IVs such as Lipitor, Ziprasidone, Lexapro and Zyprexa, contributing to higher growth and profitability of US generics. We expect margins to rise 450bps YoY as FTF launches have relatively higher margins. Excluding one offs, we see double-digit growth in base business (growth of 22% in revenue and 20% in earnings) led by strong traction in India and other emerging markets. While the average currency realizations remain higher, QoQ the INR/USD rate has appreciated which could lead to some reversal of MTM losses.

Sun Pharmaceuticals and Dr Reddy’s on a firm footing

We expect SUNP and DRRD to report strong earnings growth led by higher realizations and niche launches in US. DRRD’s growth in US, at 70% YoY, is led by launch of Ziprasidone, Seroquel and Olanzapine. SUNP would benefit from supply of Doxil (Liposomal), which could add USD45mn sales during Q4. We expect Taro margins to sustain QoQ. Ranbaxy’s (RBXY) profits will have positive impact from Lipitor sales. Lupin’s growth will see better traction with launch of OCs and generic Geodon (shared FTF). Cipla will reap strong benefit of Lexapro formulations supply to Teva. Among midcaps, we see strong traction in Torrent and Glenmark. Aurobindo Pharma (ARBP) will sustain margins at QoQ level. YoY, however, it will remain subdued due to operating issues and higher cost base.

Valuations: Risk-reward unfavorable over long term

Given higher growth in the domestic market and huge patent cliff opportunities over next 12 months, we see the pharma sector in a sweet spot over short term. However, going forward, we are cautious on the sector as generic players are likely to face growth pressures from shrinking pipeline of patent expiries. Incremental growth will come at lower margins due to increase in competitive intensity and higher fixed costs. Also, regulatory risks such as drug price control in India may de‐rate the sector as a whole. Lupin, Torrent, and Glenmark are our preferred bets. We are positive on SUNP although current valuations do not leave much upside.

Pharmaceuticals - Q4FY12 Result Preview - Bumper earnings season

    

Regards,