Pharma Q3 Preview | Muted performance likely amid sluggish US sales, higher costs

The Indian pharmaceutical industry is expected to report a modest quarter with healthy domestic show being offset by a slow US performance and flat volumes in the October-December period.

“We expect a steady quarter for pharma companies with sluggish US sales and a slower October 2022 due to the festive season in the domestic market being offset by certain company-specific product opportunities and slightly lower input cost pressures,” said a Kotak Securities report. “While the domestic market growth has bounced back in November 2022, there have not been any big-ticket US launches in 3QFY23.”

Experts at BNP Paribas estimate a 7.3 percent on-year rise in aggregate revenue, driven largely by the India formulations business. “For our pharma coverage, we estimate domestic sales to grow by 11 percent YoY and the US sales to grow at 5 percent. On an on-quarter basis, we expect the US sales to remain flat as we expect the contribution of gRevlimid to drop,” they noted.

They believe companies focussed on chronic diseases would perform better.

Analysts at ICICI securities expect the US sales to improve 5.5 percent yearly and 1 percent on a quarterly basis, driven largely by the easing of price erosion in base business and supported by new products in Q3FY23. They expect a reduction in EBITDA margin by 50bps on-year.

EBITDA margin reduction

Experts at BNP Paribas project a more conservative drop in EBITDA margins of pharma companies at 20bps on-year and 40bps on-quarter, attributing it to a high base in the third quarter and a higher Revlimid contribution in the second quarter, which might improve in case of a higher-than-expected contribution from gRevlimid.

On the cost front, freight and raw material costs are expected to dwindle a bit in the near future but companies are still facing higher costs compared to the pre-Covid levels.

“While RM prices have not corrected much, we expect some support from lower freight costs. On a sequential basis, favourable EM (emerging market) currency movement will also provide some respite,” Kotak securities said.

Experts predict an 8-11 percent sales growth in Q3FY23, and on the operating front, a 4-10 percent increase to earnings before interest, tax, depreciation and amortisation on a yearly basis.

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