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Pharma Q3: New launches, generic drug demand to aid growth

Pharmaceutical companies are expected to report healthy 15-25% year-on-year revenue growth in the third quarter, helped by new launches especially in the US and strong demand for generic drugs.

January 16, 2012 / 12:06 PM IST
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Pharmaceutical companies are expected to report healthy 15-25% year-on-year revenue growth in the third quarter, helped by new launches especially in the US and strong demand for generic drugs.

The over 15% depreciation in the rupee is also expected to boost topline of several companies. However, companies, which had already taken hedges, or had forex loans, could feel the pinch from MTM losses.

During the quarter, there were some blockbuster launches. Ranbaxy, for instance, finally got the approval and launched a copy of the cholesterol lowering drug Lipitor in the US market. It also launched a generic version of Caduet, used to lower blood pressure and cholesterol. Dr Reddy's launched its generic version of Zyprexa, used to treat psychotic conditions like schizophrenia and bipolar disorder.

"Ranbaxy is likely to report 17% growth in revenues to Rs 2,500 crore due to 24% increase in US business led by Lipitor and Caduet exclusivity and 18% growth in Europe/CIS/Africa and Romania. Branded generic business in India will also grow above industry rate at 15%," said Emkay Global Financial Services.

Lupin is also expected to get a boost from its acquisition of I'rom Pharmaceuticals via its Japanese subsidiary, which should strengthen the company's presence in that country.

"The acquisition is a good development for Lupin, given the opportunity in the Japanese generic market. Further, it would aid in scaling up the company's sales in Japan, which already is a major component of Lupin's overall sales," said Angel Broking analyst Sarabjit Kour Nangra.

Motilal Oswal's Nimish Desai and Amit Shah expect Lupin's sales in Japan will see 18% year-on-year growth to Rs 200 crore. Overall they expect Lupin's topline will grow over 15% from a year ago. The Angel Broking analyst is expecting Lupin's revenue growth will be as high as 39% during the Oct-Dec quarter.

Other companies like Divi's Lab will likely report a 32% sales growth, Ipca Labs 28%, Glenmark Pharma 27% and Dr Reddy's 23%, Emkay said.

Apart from strong sales growth, margins in the pharma space are also seen expanding 200-400 basis points in the quarter. Helped by the rupee depreciation and strong operational performance by top-tier companies, profit growth will also be strong.

Morgan Stanley analysts Sameer Baisiwala and Saniel Chandrawat expect net profit for the base business for the industry will rise 27% during the quarter, 63%, if new launches like Zyprexa and Lipitor are also included.

Some companies, however, will be hit by forex losses. Cadila Healthcare's adjusted profit is likely to decline as much as 42% according to Desai and Shah of Motilal Oswal, due to higher interest costs, forex losses on outstanding hedges and MTM Losses on forex loans. Other companies like Jubilant Organosys, Glenmark and Dishman Pharma are also likely to be hurt by forex losses.

Stock View

The CNX pharma index has outperformed the broader Nifty over the last one year as investors shifted to defensive sectors like healthcare and FMCG amid the overall market volatility. Since Sep 30, the CNX Pharma index is up 5.1%, while the wider NSE Nifty is down 1.6%.

"With the expected earnings CAGR of 21% over FY2011-13 for our universe of stocks, we remain overweight on the sector, maintaining our positive future outlook and earnings growth," said Nangra of Angel Broking. The brokerage prefers Sun Pharma, Dr Reddy's Labs, Cipla, Lupin, Cadila and Dishman Pharma apart from a few other companies in the sector.

Morgan Stanley said it too remains "overweight" on the large caps in the pharma space and its order of preference is Dr Reddy's, Lupin, Cipla, Sun Pharma and Ranbaxy.

Cipla, Divi's Labs, Lupin Torrent Pharma and Ipca Lab are among Motilal Oswal's top picks in the sector.

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