Pharma Q4 preview: US launches, steady domestic growth to drive recovery

Axis Securities anticipates the aggregate US revenue to grow on-year despite high single-digit price erosion in the industry, offset by the launch of new products. Among new launches, analysts at PhilipCapital see gRevlimid as the key earnings driver for select companies in Q4.

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Talking about the key risks in the coming quarters, ShareKhan by BNP Paribas believes the recent flagging by the US Food and Drug Administration of a few Indian manufacturers’ plants with Form-483s will delay key product launches for players like Sun Pharma and Cipla.

On the domestic front, Jefferies expects the strong flu/viral wave in the early part of the year to drive double-digit growth in Q4.The broking firm sees Alkem and Cipla as the biggest beneficiaries of a strong flu season and estimates low double-digit year-on-year growth for the two, with room for positive surprises.

The peaking of raw material, crude and shipping costs is also expected to ease margin pressures for pharma companies, with signs reflecting from Q4 well into the coming quarters. Regardless of those, brokerages still do not expect a significant expansion on the profitability front just yet. "Margins will improve due to better products mix but that will also be partially offset by a competitive intensity in the US and domestic market," ShareKhan by BNP Paribas stated in a report.

Who's winning the race?

Cipla and Zydus Lifesciences emerge as the Street's favourite pharma picks amid expectations of a stellar Q4 performance by these companies. Strong core India growth, better product mix and push from gRevlimid sales are the reasons attributed for their anticipated outperformance.

Another beneficiary of gRevlimid sales is Dr Reddy's Laboratories, which also enjoys fairly bullish expectations from analysts. The company is also expected to reap the benefits of its brand sales to Eris Lifesciences, worth Rs 275 crore, which will incrementally boost its reportable earnings in Q4, PhilipCapital wrote in its report.

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Pharma companies operating the active pharmaceutical ingredient (API) and CDMO or contract development and manufacturing organisation segments, like Divi's Laboratories and Gland Pharma, among others, are expected to witness margin pressure due to the high COVID base from the Omicron outbreak last year. ShareKhan foresees a negative outlook in the space over the short to medium term.

Muted Q4 show for diagnostics

Diagnostic players are likely to report muted year-on-year numbers in the fourth quarter, bogged down by the higher share of COVID testing last year. As for non-COVID revenues, analysts expect companies to report double-digit growth.

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JM Financial expects Metropolis to deliver lower PPP (public-private partnership) sales due to the expiry of a government contract whereas Vijaya Diagnostics is likely to witness topline contribution from its new centres.

As for Krsnaa Diagnostics, the brokerage anticipates operationalised and new pathology centres to drive over 20 percent revenue growth and around 26 percent EBIDTA margin.

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