ƒHealthcare ƒ High base, lack of new product approvals to hamper growth :Q3FY15 Result Preview : ICICI Securities, report

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ƒ High base, lack of new product approvals to hamper growth
During Q3, companies under the I-direct healthcare coverage are
expected to post growth of 10.5% YoY to | 28190 crore. The growth
rate is the slowest in the last many quarters. But for the traction from
domestic formulations and acquisitions by Aurobindo and Torrent, the
growth could have been even lower (excluding Actavis and Elder
acquisitions, growth would be ~8% YoY to | 27562 crore).
Consolidated US sales (from select pack) are likely to grow 6% YoY to |
8362 crore. This temperance is mainly on the back of a high base,
increased competition in existing products and slowdown in product
approvals from the USFDA. Indian formulations from a select pack are
likely to grow 21% YoY to | 6083 crore on the back of new launches
and normalcy in trade channels post NLEM price implementation.
Currency headwinds from emerging economies such as Russia, Brazil
and Venezuela are also likely to impact growth from these markets for a
few of the universe companies such as Dr Reddy’s and Glenmark.
Among players, Ajanta Pharma, Cipla, Torrent and Aurobindo are
expected to do well on the back of strong growth in the domestic
market and consolidation of the acquired businesses. On the other
hand, a few of the frontline pharma companies like Lupin, Dr Reddy’s
and Glenmark are likely to be laggards on account of the slowdown in
USFDA approvals and adverse currency movement.
ƒ EBITDA to grow just ~2% YoY
We expect EBITDA of the I-direct healthcare coverage to grow just 1.6%
YoY to | 7240 crore. EBITDA margins are likely to decline ~225 bps to
25.7% on account of incremental R&D spend by most players and lack
of high margin exclusivity products.
ƒ Consolidated net profit to decline 1.2% YoY
We expect net profit of the I-direct healthcare coverage to decline 1.2%
YoY to | 4671 crore on the back of lower EBITDA growth and higher
depreciation provision as per the new norms.

5: Company specific view (Pharma)
Company Remarks
Ajanta Pharma Revenues are expected to grow ~19% YoY on the back of ~18% growth in exports
and ~24% growth in the domestic formulations. Exports growth may be driven by
new launches whereas domestic growth may be driven by traction in branded
formulations
Apollo Hospitals Standalone sales are likely to grow at ~17% YoY driven by 26% growth in the
pharmacy business and 12% growth in healthcare service business. We expect the
company to add ~20 pharmacy stores during the quarter. EBITDA margins are likely
to decline just ~35 bps to 15.5% despite the commissioning of new hospitals due to
improvement in margin scenario in the pharmacy space
Aurobindo
Pharma
We expect ~32% YoY growth in revenues on the back of consolidation of Actavis
Europe and 25% growth in the US (driven by base business and new launches
including injectables). EBITDA margins are likely to decline sharply by ~850 bps to
21.6% on account of consolidation of Actavis and loss of gCymbalta exclusivity
Biocon Revenues are likely to grow ~7% YoY on the back of 15% growth in research services
business and 20% growth in branded formulations. Biopharma (ex-branded) growth,
on the other hand, may continue to be flattish. EBITDA margins may decline 209 bps
to ~23% due to pricing pressure in the bio-pharma space and higher R&D spends
Cadila
Healthcare
Revenues are expected to grow ~12% YoY mainly on the back of ~30% growth in
the US business and 15% growth in domestic formulations. US growth would be on
the back of new products approvals and traction from authorised generics. EBITDA
margins are likely to improve ~186 bps to 20.4% on a lower base
Cipla Revenues are expected to grow ~14% YoY on the back of 20% growth in domestic
formulations and ~10% growth in exports formulations. Exports growth is likely to be
driven by inhaler launches in Europe. EBITDA margins are likely to expand to 20.8% on
account of focus on margin accretive business
Divi's
Laboratories
Revenues are likely to grow ~21% YoY driven by growth in the API business. Growth
in custom synthesis is likely to be subdued. EBITDA margins are likely to compress
425 bps to 38% on the back of higher operating expenses at the DSN SEZ and higher
growth in low margin APIs
Dr Reddy's Revenues are expected to decline ~2.5% YoY mainly on the back of 10% decline in
the US business owing to higher base, lack of incremental product launches and
enhanced competition in existing products. Russia and CIS business also expected to
decline 15% YoY due to adverse currency movements. EBITDA margins are expected
to decline 584 bps to 23.7% due to base effect and higher R&D spends
Glenmark
Pharma
Revenues are expected to grow just ~5% YoY on the back of 25% growth in domestic
formulations. RoW business, on the other hand, may witness de-growth of 40% due
to high base and adverse currency movement. The US business may continue to
remain sluggish due to lack of new launches. EBITDA margins are likely to decline
231 bps to 21% due to higher R&D spend
Indoco Remedies Revenues are likely to grow ~22% YoY on the back of 39% growth in export
formulations and 10% growth in domestic formulations. The growth in export market
will be on the back of pick-up of sales in the newly entered geographies and
commencement of shipments under the Watson deal in the US. We expect EBITDA
margins to improve 521 bps to 21% due to improved product mix
Source: Company, ICICIdirect.com Research

: Company specific view
Ipca Laboratories Revenues are expected to decline 1.7% YoY on the back of 12% decline in the export
business due to voluntary stoppage of API exports to the US from the Ratlam facility
pursuant to the observations from the USFDA. This is also likely to impact formulation
exports to the US from Silvassa and Indore. The 22% growth in domestic formulations
will, however, provide some cushion to revenue decline. EBITDA margins are
expected to decline ~900 bps to 17% due to higher base and expenses on corrective
measures
Jubilant Life
Science
Revenues are expected to increase ~1.3% YoY on the back of 5% growth in life
science ingredients (LSI) segment. Tepid growth in the LSI segment will be on
account of Chinese regulatory changes and pricing pressure. The pharma business
growth is likely to be negative due to shutdown impact and pricing pressure in some
formulations and APIs. EBITDA margins are likely to get compressed ~780 bps due to
pricing pressure in pharma
Lupin Revenues are likely to grow just ~4% YoY due to 7% and 5% decline in the US and
Japanese businesses, respectively. On the other hand, domestic formulations are
likely to register healthy growth of 20%. Decline in the US may be on account of a
slowdown in product launches and competition in existing products. Similarly, the
Japan business may be impacted due to adverse currency movement and
restructuring in I’rom business. EBITDA margins are expected to improve 91 bps to
26.5%
Sun Pharma Revenues are likely to grow ~14% YoY driven by 23% growth in domestic
formulations and 11% growth in US formulations. The relatively lower growth in the
US may be on account of lower growth of 8% at Caraco. Taro, on the other hand, is
expected to register 15% growth. EBITDA margins may decline ~254 bps YoY to
43.9% on account of expired Cymbalta’s exclusivity and remedial measures
Torrent Pharma Revenues are expected to grow ~20% YoY on the back of 15% growth in the US and
48% growth in domestic formulations (post the consolidation of Elder portfolio). EU
markets are expected to grow ~5% on a higher base. EBITDA margins are likely to
improve 282 bps YoY to 24% on the back of better operational performance
expectation and consolidation of the high margin Elder portfolio
Unichem Labs Revenues are expected to grow 8.4% YoY on the back of 25% growth in export
formulations and 2% growth in domestic formulations. We expect EBITDA margins to
decline 485 bps to 13.3% YoY on the back of a slowdown in domestic formulations
Source: Company, ICICIdirect.com Research

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