AnandRathi has come out with its report on India healthcare. According to the research firm, EBITDA margins are expected to be stable at 22-23 percent during the quarter. "Cipla, Cadila Healthcare, Natco Pharma, and Unichem Laboratories are the top picks, says AnandRathi.
India Healthcare - Exports to drive revenues, says AnandRathi
Revenue growth to take a hit: Companies under our coverage are likely to post 9.4 percent yoy revenue growth, lower than high double-digit growth in the past few quarters due to slowdown in domestic industry with implementation of new drug pricing policy and high base because of FTFs. However, exports (ex FTFs) would remain strong with ~20 percent growth. Excluding FTFs, we expect overall 14.3 percent revenue growth during the quarter. Sun, Lupin, Glenmark, DRL, and Ipca are expected to drive most of the revenue growth.
Margin stable, adj. PAT higher: We expect EBITDA margins to be stable at 22-23 percent during the quarter. However, ex the impact of Lipitor exclusivity for Ranbaxy in 1QFY13, we estimate 100bps improvement in EBITDA margin. Adjusted PAT growth could be 10.9 percent yoy, higher than revenue growth due to higher other income and reduced interest cost. Sun, DRL, Lupin, Glenmark, Pfizer and Ipca would register higher net profit growth.
Domestic business may surprise negatively: Considering AIOCD AWACS data, domestic pharma industry has grown at single digit in Apr- May'13 against mid teens in the past few years. The slowdown has been across therapeutic categories, including chronic. Further, implementation of new drug pricing policy could also hit growth.
Our take: Led by strong revenues in export formulations and stable margin, we expect continued momentum in India healthcare. Domestic formulations may surprise negatively in FY14e due to new drug pricing policy. We remain Overweight on the sector.
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