Pharmaceutical Sector Preview – Q3FY15:: HDFC Sec

Please Share::

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

��

-->
Q3FY15 earnings are likely to be impacted by emerging markets’ (EM) currency headwinds ‐ Russia/Ukraine/Brazil/South Africa and lack of meaningful ANDA approvals.
US will remain key growth driver although slower due to slowdown in ANDA approvals, impact of customer consolidation and rising competition. Among the front line
players, Dr Reddy’s is likely to be impacted by Russia currency depreciation and could report subdued y‐o‐y revenue rise while margins could remain flat y‐o‐y. Sun
Pharma could see some weakness in y‐o‐y margin performance.
Currency depreciation
The impact of strong appreciation of USD vis‐à‐vis emerging market currencies especially the steep depreciation of Russian and Venezuelan currencies are key
headwinds for Indian Pharma companies in Q3FY15E. Depreciation in Russian Rouble (down 41.1%) and Venezuelan Bolivar vis‐à‐vis the USD would meaningfully impact
revenues and margin of Dr Reddy’s and Cipla. There could be a positive impact for Sun Pharma owing to the disproportionate reliance on the US market.
High base, lack of new product approvals to hamper growth
US sales could be muted mainly on the back of a high base, increased competition in existing products and slowdown in product approvals from the USFDA. Indian
formulations could grow 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. Cipla is expected to do
well on the back of strong growth in the domestic market and consolidation of the acquired businesses. On the other hand, Dr Reddy’s is likely to be a laggard on
account of the slowdown in USFDA approvals and adverse currency movement.
Very few ANDA approvals
There is a significant slowdown in ANDA approvals for all companies. If approval rates do not pick up, US growth is likely to be hurt, in the near as well as long term. Few
approvals for ANDA continue to be major roadblock for Indian generics in US as there were final approvals for 46 products in 9MFY15. Lupin and Dr Reddy’s are only
beneficial among Indian companies in Celebrex and Valcyte respectively. Overall, there are no meaningful approvals in US for Indian generics other than the two
products in Q3FY15.
Emerging markets – slow growth
In ROW exports, we expect Indian companies may prefer lower sales growth and shorter working capital cycle in troubled markets as a part of its risk mitigation process.
Hence we expect lower sales growth in Latam especially in Mexico, Venezuela and Colombia. Sales growth in Brazil continues to be laggard for Dr Reddy’s due to
inconsistent regulatory process for approval of generic drugs.
Impact of DPCO
The diminishing effect of the new DPCO Act 2013 continues to benefit growth in domestic formulation sales in Q3FY15E. The strong price rise and volume growth in
non‐DPCO drugs could be a major reason for growth as non‐DPCO drugs contribute 82% of market value of domestic formulations. Though, the price rise in DPCO drugs
is limited, this could be a partial booster for domestic sales growth of Indian generic companies.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010681