Pharma: NPPA back in action; IPM growth normalises :: ICICI Securities, report link

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NPPA back in action; IPM growth normalises
In yet another DPCO expansion exercise, the NPPA has fixed the ceiling and
retail prices of additional 52 formulation packs in the scheduled category
under the DPCO 2013 as per the new notification. The combined market
value of these drugs is ~| 123 crore.
The IPM rebounded in November with growth of 10.9% YoY to | 7243 crore
for the month. The YoY growth was driven by - 1) price hikes: 5.0% 2)
volume growth of 2.9% and 3) new product launches: 3.1%. The price hike
was the steepest in the last 12 months, another testimony to normalising
channel bottlenecks and increasing pricing power.
Cipla Medpro continued to look for tender wins with a tender worth ZAR 2
billion (~| 1095 crore) from the South African government to supply antiretroviral
(ARV) drugs. This latest government tender win is the third in 2014
and follows a ZAR 280 million state therapeutic drug tender (in August
2014) and a ZAR 345 million national respiratory tender (in June 2014).
On the acquisition front, Aurobindo has completed the acquisition of assets
of US-based nutritional supplement maker Natrol. Through this acquisition,
the company aims to diversify its operations beyond the traditional generics
business, especially into neutraceuticals targeting the US and other
international markets. As per last available reports (2012 annual report of
Plethico) Natrol clocked ~| 500 crore revenues.
Continuing with acquisitions, DRL has also closed the deal involving the
acquisition of Habitrol brand (an over-the-counter nicotine replacement
therapy transdermal patch) from Novartis. The company had earlier entered
into an asset purchase agreement with Novartis to acquire the title and
rights of Habitrol brand and to market the product in the US market.
Medicines for Malaria Ventures (MMV), a global non-profit making agency in
the fight against Malaria, has inked agreements with Cipla and Strides
Arcolab to develop anti-malarial drug rectal artesunate for malaria. Cipla and
Strides will each develop a product building on the clinical studies.
BSCHC widens outperformance; limited scope for further upside…
The BSEHC stretched its outperformance over the broader indices by
almost 15% on a YTD basis. After remaining a laggard during the first half of
2014, pharma stocks have staged a comeback in the second half on the
back of rejuvenated buying, contrary to our expectations due to - 1)
consolidation in the cyclical space after the swift rally on hopes of
progressive steps towards ground changing reforms by the newly elected
Modi government and 2) consensus beating numbers by most pharma
players on the back of robust US traction and a visible strong recovery in
domestic formulations. Strengthening of the US dollar is also benefiting the
sector. The BSEHC is currently trading at ~53% premium to the Sensex
forward PE. This, we believe, is on account of a re-rating of the entire
pharma pack. However, though the sector remains in a sweet spot on the
back of better growth visibility, healthy margins & return ratios and delevered
balance sheets, the sharp run up in the last few months has
rendered valuations for most players a bit stretched (despite the current
correction) on an FY17 basis. We expect a consolidation in the sector as the
re-rating phase seems over. We expect pharma companies under our
coverage to register a CAGR of 18%, 20% and 24% in revenues, EBITDA
and PAT in FY14-17E on an aggregate basis.

LINK
http://content.icicidirect.com/mailimages/IDirect_HealthCheck_Dec14.pdf