Pharmaceuticals Sector - Results Preview - Domestic Biz to Recover Further; US Biz Expected to Remain Weak
The companies under our pharma coverage universe are expected to report a flat sales performance both on YoY and QoQ basis in 3QFY18 due to multiple headwinds in the US (increasing pricing pressure, regulatory concerns and channel consolidation). Overall, we expect weak sales growth in the US business (-12.9% YoY in CC terms) and further recovery in domestic business post GST roll-out. We expect EBITDA and PAT of our coverage universe to decline by 13.3% YoY (-3.0% QoQ) and 15.4% YoY (-6.1% QoQ), respectively, while the EBITDA margin is expected to decline by 350bps YoY (-67bps QoQ) due to weak US sales. However, we continue to remain positive on long-term prospects of the pharmaceutical sector and recommend being stock-specific.
Pricing Pressure & High YoY Base to Impact US Biz
Most companies in our coverage universe are expected to report muted growth in US sales (YoY) due to high revenue base in 3QFY17 and steep price erosion (led by faster ANDA approvals and channel consolidation). We believe US business will continue to remain under pressure due to regulatory concerns (US FDA). On a positive note, the US FDA has approved higher number of ANDAs to Indian companies (246 ANDAs in 3QFY18 vs. 198 in 2QFY18 and 169 in 3QFY17). Notably, the US business remains mainstay for most companies under our coverage universe. Several measures i.e. aggressive R&D spend and scale-up in complex ANDA filings are considered sustainable for meaningful growth in their US business. We envisage improvement in US sales of the companies like ARBP (injectable portfolio) and Cadila HC (gLialda & gTamiflu), while we expect weak US sales for Sun Pharma (increased price erosion & gGleevec), Glenmark (end of gZetia exclusivity) and Lupin (steep price erosion to gGlumetza and gFortamet sales).
Further Recovery in Domestic Biz Post GST Roll-out
Domestic formulation business of our pharmaceutical coverage companies was adversely impacted in 1QFY18 on the back of challenges relating to GST (inventory de-stocking by trade channels in run-up to roll-out). We have seen significant recovery in 2QFY18 due to inventory re-stocking at retailers level. We expect the domestic business of the companies to stage a further recovery in 3QFY18. Notably, inventory re-stocking is yet to reach at pre-GST level. The Indian pharmaceutical market – which reported 6.5% YoY growth in Oct’17 (vs. +3.2% YoY in Jul’17) and +6.0% YoY growth in Oct’17 (MAT; AIOCD) – is expected to witness mid-teen growth over next few years led by new product launches and volume growth. We continue to remain bullish on Indian pharmaceutical sector from long-term perspectives.
Top Picks: Alkem Labs, Torrent Pharma and Cadila Healthcare
Key Developments to Watch Out For:
Ajanta Pharma: Outlook on India business and margin profile.
Alkem Labs: Outlook on India business and update on new launches in US.
Aurobindo Pharma: Update on debt front and outlook on injectable business.
Cadila HC: Outlook on India and US business.
Cipla: Update on combination inhaler launch in the UK.
Glenmark: Outlook on the US/India businesses and update on debt repayment.
Lupin: Outlook on US and India business.
Sun Pharma: Update on Halol plant inspection and the US business outlook.
Torrent Pharma: Outlook on India business post acquisition of Unichem’s India business.
Next Read: Cement Sector-Q3FY18-Results Preview
Q3FY18-Sector Review:
Pharmaceuticals Sector -Q3FY18-Results Preview
FMCG Sector-Q3FY18-Results Preview
IT Sector-Q3FY18-Results Preview
Banking Sector-Q3FY18-Results Preview
Cement Sector-Q3FY18-Results Preview
The companies under our pharma coverage universe are expected to report a flat sales performance both on YoY and QoQ basis in 3QFY18 due to multiple headwinds in the US (increasing pricing pressure, regulatory concerns and channel consolidation). Overall, we expect weak sales growth in the US business (-12.9% YoY in CC terms) and further recovery in domestic business post GST roll-out. We expect EBITDA and PAT of our coverage universe to decline by 13.3% YoY (-3.0% QoQ) and 15.4% YoY (-6.1% QoQ), respectively, while the EBITDA margin is expected to decline by 350bps YoY (-67bps QoQ) due to weak US sales. However, we continue to remain positive on long-term prospects of the pharmaceutical sector and recommend being stock-specific.
Pricing Pressure & High YoY Base to Impact US Biz
Most companies in our coverage universe are expected to report muted growth in US sales (YoY) due to high revenue base in 3QFY17 and steep price erosion (led by faster ANDA approvals and channel consolidation). We believe US business will continue to remain under pressure due to regulatory concerns (US FDA). On a positive note, the US FDA has approved higher number of ANDAs to Indian companies (246 ANDAs in 3QFY18 vs. 198 in 2QFY18 and 169 in 3QFY17). Notably, the US business remains mainstay for most companies under our coverage universe. Several measures i.e. aggressive R&D spend and scale-up in complex ANDA filings are considered sustainable for meaningful growth in their US business. We envisage improvement in US sales of the companies like ARBP (injectable portfolio) and Cadila HC (gLialda & gTamiflu), while we expect weak US sales for Sun Pharma (increased price erosion & gGleevec), Glenmark (end of gZetia exclusivity) and Lupin (steep price erosion to gGlumetza and gFortamet sales).
Further Recovery in Domestic Biz Post GST Roll-out
Domestic formulation business of our pharmaceutical coverage companies was adversely impacted in 1QFY18 on the back of challenges relating to GST (inventory de-stocking by trade channels in run-up to roll-out). We have seen significant recovery in 2QFY18 due to inventory re-stocking at retailers level. We expect the domestic business of the companies to stage a further recovery in 3QFY18. Notably, inventory re-stocking is yet to reach at pre-GST level. The Indian pharmaceutical market – which reported 6.5% YoY growth in Oct’17 (vs. +3.2% YoY in Jul’17) and +6.0% YoY growth in Oct’17 (MAT; AIOCD) – is expected to witness mid-teen growth over next few years led by new product launches and volume growth. We continue to remain bullish on Indian pharmaceutical sector from long-term perspectives.
Top Picks: Alkem Labs, Torrent Pharma and Cadila Healthcare
Key Developments to Watch Out For:
Ajanta Pharma: Outlook on India business and margin profile.
Alkem Labs: Outlook on India business and update on new launches in US.
Aurobindo Pharma: Update on debt front and outlook on injectable business.
Cadila HC: Outlook on India and US business.
Cipla: Update on combination inhaler launch in the UK.
Glenmark: Outlook on the US/India businesses and update on debt repayment.
Lupin: Outlook on US and India business.
Sun Pharma: Update on Halol plant inspection and the US business outlook.
Torrent Pharma: Outlook on India business post acquisition of Unichem’s India business.
Next Read: Cement Sector-Q3FY18-Results Preview
Prevoius Read: FMCG Sector-Q3FY18-Results Preview
Pharmaceuticals Sector -Q3FY18-Results Preview
FMCG Sector-Q3FY18-Results Preview
IT Sector-Q3FY18-Results Preview
Banking Sector-Q3FY18-Results Preview
Cement Sector-Q3FY18-Results Preview
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