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Jan 10, 2018 05:00 PM IST | Source: Moneycontrol.com

Pharma sector likely to witness recovery in growth in Q3FY18, EBITDA margin to fall: ICICIdirect

CICIdirect expects weak results from Sun Pharma due to continued pricing pressure in Taro portfolio and FDA issues at Halol plant and also Lupin due to competition in generic Fortamet and Glumetza, and Glenmark Pharma due to weak US growth on high base with Zetia exclusivity.

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Research and broking firm ICICIdirect expects healthcare companies to report recovery in revenue growth for the quarter ended December 17, mainly on account of low base last year in the domestic business impacted by demonetisation.

However, it expect EBITDA margin decline of 280bps YoY due to continued pressure on US business and increased R&D spend despite delay in key product launches. The margin and PAT decline would be due to poor performance in Glenmark, Lupin and Sun Pharma.

Increased competition and pricing pressure would continue to impact growth in US focussed companies. ICICIdirect expects weak results from Sun Pharma due to continued pricing pressure in Taro portfolio and FDA issues at Halol plant and also Lupin due to competition in generic Fortamet and Glumetza, and Glenmark Pharma due to weak US growth on high base with Zetia exclusivity.

Overall, the firm expects the companies to report 5.5 percent revenue growth and 6.7 percent PAT decline YoY with EBITDA margin drop of 280bps.

The research firm is of the view that the Indian pharma market witnessed moderate growth, as the industry recovers from restocking post the implementation of GST, at average 7.3 percent in value terms for Oct-Nov’17. Secondary sales clearly indicate the value decline on YoY basis of 15.8 percent and 5.1 percent while growth on QoQ basis of 9.2 percent and 1.9 percent in portfolio under FDC and NLEM, respectively, due to FDC ban and price revision, respectively.

In terms of US generics, ICICIdirect expects Q3FY18 numbers to show moderate growth to decline in US sales. Sun Pharma, Lupin and Glenmark are expected to face pricing pressure in base business. Natco Pharma, Cadila Healthcare and Shilpa Medicare would benefit from product approvals. Stringent regulatory hurdles as USFDA cracks down on non-compliant facilities remains an overhang for new product approvals despite a healthy pending ANDA pipeline.

The key factors to observe in Q3FY18 numbers, according to the house would be growth of domestic business post GST and on low base due to demonetisation, update on USFDA issues plaguing several companies, continued pricing erosion in US business with consolidation of the buyers and increased competition, and growth in emerging markets after stabilisation of currencies and any working capital issues in these markets.

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