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Last Updated : Jan 10, 2020 03:49 PM IST | Source:

Brokerages see a steady but lacklustre Q3 for Indian pharma sector

Key factors to watch out in Q3 numbers will be growth consistency in India, for the industry and respective companies, and update on USFDA issues affecting several firms.

Representative Image
Representative Image

A weak rupee and strong API exports during the October-December period have fuelled the hopes that the pharma sector will post better numbers in the third quarter. 

The optimism, however, may be misplaced, as most brokerages are of the view that the third-quarter numbers will be steady but lacklustre, thanks to no visible recovery in US generics.

"Indian pharma industry is likely seeing a lacklustre quarter in Q3, primarily due to no visible recovery in US generics despite continued R&D efforts and the peak price and volume base of the last year due to China supply disruption," brokerage firm Phillip Capital said.


Phillip Capital expects a 6 percent year-on-year (YoY) rise in the revenue base of the pharma companies. Despite a broad-base rupee depreciation against all key currencies and inorganic developments, most companies may report muted operating performance primarily due to weak US performance, it said.

Cipla and IPCA Labs, however, could turn out to be exceptions.

"Cipla (led by continued dominance in gSensipar) and IPCA (led by strong growth across segments) is likely to deliver healthy earning performance," Phillip Capital said.

Domestic brokerage firm Motilal Oswal expects aggregate earnings growth to be on a gradual downtrend, while ICICI Securities foresees tepid earnings. Anand Rathi expects growth to be driven by domestic and API businesses.

Motilal Oswal expects aggregate sales to grow 6.2 percent YoY in the quarter. EBITDA/PAT YoY growth should be lower than sales growth at 4.2-4.3 percent due to lesser traction in niche products and a lack of meaningful approvals in the US generics segment during the quarter.

The brokerage also expects aggregate US sales growth to be on a downtrend in the third quarter at 2.7 percent YoY. 

Moderation in YoY growth can be attributed to fewer approvals, coupled with a reduced share of niche products in the portfolio. However, after the two quarters of sequential decline, Motilal Oswal expects a 2.3 percent QoQ rise in US sales on aggregate.

Alkem Labs, GSK Pharma and Laurus Labs are expected to deliver strong YoY growth led by superior execution. It expects stable YoY earnings for Lupin, while a high base of the last year should result in earnings decline for Divis Labs. 

Motilal Oswal's top picks are Ipca Labs and Alkem Labs.

Anand Rathi, in a report, said the US would be a drag on the earnings. It sees the domestic base of the companies to grow 11 percent to Rs 5,700 crore.

Of the front-runners, Anand Rathi expects Cadila Healthcare, Ipca Labs and Indoco Remedies to grow more than 15 percent, while Alembic and Eris Life Sciences are to see single-digit growth.

Domestic sales of Natco Pharma are likely to decline due to issues with the Hep-C franchise and rationalisation of trade margins in oncology, it added. 

Top 25 companies will continue to enjoy a 71 percent market share and volume growth in December is likely to persist.

US sales are expected to fall 16 percent to $420 million. Cadila Healthcare, Natco Pharma and Torrent Pharma are expected to report a dip of 32 percent, 22 percent and 10 percent, respectively.

According to a report by ICICI Securities, pharma and healthcare companies are likely to report tepid earnings. However, steady performance is likely on the EBITDA margin front, supported by steady growth in the domestic market.

US revenues will remain muted, with an estimated 1 percent growth QoQ due to increased competition with faster approvals, delay in product approvals with increasing compliance issues and single-digit price erosion. 

The brokerage firm estimates India's business growth to be in early double digits, as seen in secondary sales data.

ICICI Securities forecasts the EBITDA margin at 19 percent supported by India business and cost-control measures. Overall, it expects 5.5 percent revenue and 4 percent EBITDA growth YoY. It has Torrent Pharma, Alkem Labs and JB Chemicals as the top picks.

Cipla, Sun Pharma, Aurobindo Pharma, Cadila Healthcare, Alembic Pharma and Torrent Pharma would have largely flattish US sales due to loss of sales in their key products. 

However, Dr. Reddy’s Labs and Lupin will show positive growth. Stringent regulatory hurdles in the wake of USFDA crackdown on noncompliant facilities remain an overhang for new product approvals despite a healthy pipeline of pending ANDAs, the brokerage said.

Companies to watch

ICICI Securities expects strong results from Aurobindo Pharma on new product approvals with a ramp-up in injectables portfolio as well as the resolution of Sandoz acquisition and Dr. Reddy’s Labs with new launches and effective cost-control measures. Cipla may also report good results on steady revenue growth with margin expansion.

Factors to watch

While the numbers will show how the sector fared, the market will also observe the outlook of the companies closely.

Brokerages say key factors to watch out in Q3FY20 numbers and management commentary are the growth consistency in India for the industry and respective companies, update on USFDA issues, price erosion in the US business and growth in emerging markets with steady demand.

Disclaimer: The views and investment tips expressed by brokerages on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Jan 10, 2020 03:49 pm
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