Apr-June qtr: Pharma cos to see healthy sales, sick margins
Pharmaceutical sector has been in the pink of health this year with most stocks outperforming the broader market since the beginning of April. However, there could be some suffering ahead.
July 18, 2011 / 09:06 AM IST
Pharmaceutical sector has been in the pink of health this year with most stocks outperforming the broader market since the beginning of April. However, there could be some suffering ahead. Most drug makers in India are expected to report higher sales growth in April-June quarter, but a rise in cost of raw materials and staff costs, which includes expansion of sales force, is likely to hurt margins.
Analysts on average expect pharmaceutical companies to report "healthy" 17-20% year-on-year revenue growth in the three-month period. There will be a higher revenue contribution coming from domestic market (boosted by seasonally strong formulations business) and rest of the world (excluding highly regulated markets like north America and Europe).
Despite the strong growth in topline, net profit is likely to lag due to a pressure on margins, analysts say.
"On the operating front, margins are expected to decline by 110bps, which along with increased tax outgo would lead to flat growth in net profit," said Angel Broking.
Sushant Dalmia of Pinc Research said margins, excluding Sun Pharma and Ranbaxy, could decline as much as 177 bps in the quarter.
"Increase in the field force and expansion of capacities will lead to pressure on margins. Overall EBITDA margins for the universe are expected to be 23%," according to Siddhant Khandekar and Krishna Kiran Konduri of ICICI Securities.
Consolidation of lower margin businesses by some companies and absence of revenues from high margin first to file (generic) drugs will lead to a marginal 5% year-on-year growth in EBITDA (earnings before interest, taxes, depreciation amortization) the ICICI Securities analysts said. They expect profit after tax to grow a mere 1% for the sector.
Ranbaxy Laboratories and Sun Pharma will be among the worst hit due to a higher base of limited competition products a year ago. Manoj Garg and Perin Ali of Edelweiss Securities expect earnings of Ranbaxy will decline as much as 53% from a year ago, while Sun Pharma