Pharma cos likely to post 21% EBITDA growth in Q4: MOST

Motilal Oswal has come with its March`13 quarterly earning estimates for healthcare sector. The research firm expects a top line growth of 17.4% YoY and EBITDA growth of 21.3% YoY for our pharma universe (excluding one-offs).

Top line to grow by 17.4%, EBITDA by 21.3% on the back of strong operational performance by Sun Pharma, Lupin, Glenmark and IPCA Labs- For 4QFY13E, we expect a top line growth of 17.4% YoY and EBITDA growth of 21.3% YoY for our pharma universe (excluding one-offs). Adjusted PAT is likely to grow 10.7% YoY. EBITDA growth would be mainly led by a strong performance by Sun Pharma, Cipla, Lupin and Glenmark, which would witness high growth over a low base in 4QFY12, driven by new launches, better sales mix and acquisitions (only in case of Sun). Dr. Reddy's, Ranbaxy and Cadila are expected to report subdued operational performance on the back of deteriorating profitability in the base business and other cost pressures. At the macro level, we expect the operating performance for the sector to benefit from the favorable currency. Adjusted PAT growth at 10.7% would be lower than EBITDA growth, mainly due to lower MTM gains on forex loans and derivatives compared to 4QFY12.

Core 4QFY13 performance: Key highlights-

Sun Pharma, Cipla, Lupin and Glenmark to record strong operational improvement: We expect Sun Pharma, Cipla, Lupin and Glenmark to record strong EBITDA growth for 4QFY13E due to:

• Sun Pharma: We expect strong growth of 40% in core EBITDA driven mainly by (1) strong performance at Taro Pharma, (2) consolidation of recent acquisitions of URL Pharma & DUSA Pharma and (3) favorable currency.
• Cipla: Operational performance will be led by improved sales mix in the export formulations division, with strong growth in high value segments of antidepressants and anti-allergics. We expect 24% EBITDA growth driven mainly by higher gross margin.
• Lupin: We expect Lupin to report a EBITDA growth of more than 80% on a low base of 4QFY12, which was impacted by Irom acquisition, litigation expenses, translation losses on Yen and higher employee cost. Core EBITDA margins will expand to 19.5% from 14.2% in 4QFY12 driven by high gross margin and lower other expenses (on account of operating leverage).
• Glenmark: Performance would be driven by strong top line growth in US generics, SRM branded formulations and favorable currency. EBITDA growth would be faster than top line growth on a low base in 4QFY12 when the company witnessed subdued operational performance due to adverse sales mix.
• Our MNC pharma universe (GSK Pharma and Sanofi India) is expected to witness an improvement in EBITDA margins, with increased revenue contribution from the recently launched products. 6. We expect Ranbaxy Labs, Dr. Reddy's and Cadila to report subdued operational performance due to deteriorating profitability in the base business and rising costs pressure.

(Rs- Mn)

Company	Sales			Net Profit			Ratings
	Mar.13	Var. % YoY	Var. % QoQ	Mar.13	Var. % YoY	Var. % QoQ
Biocon	6,459	5.8	1.8	855	-12.5	-6.7	Neutral
Cadila Health	16,253	16.3	2.1	1,341	-21.5	30.3	Buy
Cipla	20,790	14.8	0.4	3,297	27.9	-2.7	Neutral
Dishman Pharma	3,609	3	13.6	162	-48.3	-1.2	Neutral
Divis Labs	8,080	14.1	51.5	2,173	1.2	50.6	Buy
Dr Reddys Labs	25,763	12.7	-4.5	2,331	13.4	-25	Buy
Glenmark Pharma	12,245	18.9	-5.8	1,397	5	-11.3	Buy
GSK Pharma	7,027	12.8	7	2,056	10.7	29.9	Buy
IPCA Labs	6,674	18.9	-4.8	787	2.7	-10.5	Buy
Jubiliant Life	13,278	13.4	2	915	91.9	242.7	Neutral
Lupin	22,733	33.6	-4.3	2,600	421.1	-13.1	Buy
Opto Circuits	6,334	-4.4	2.4	749	-64.2	-34.2	Neutral
Ranbaxy Labs	24,981	18.1	2.5	1,370	-26.4	LP	Neutral
Sanofi India	3,963	22.9	-1.1	441	9.9	-1.6	Neutral
Sun Pharma	27,093	27.7	0.6	8,709	19.6	5.6	Neutral
Torrent Pharma	7,784	15.4	-2.4	669	19.3	-40.5	Buy

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