Pharma firms likely to post soft Q3, but low base may play saviour

The pharmaceutical sector may have hit a soft patch, which is likely to post a subdued bottom line for the quarter to December 2017. However, revenue growth could be in for some traction because of a low base effect in the wake of demonetisation.

ICICI Securities expects that Ebitda margin of companies under its coverage may decline as much as 280 basis points on year, pressured by a challenging US business environment and increased R&D spend with a delay in key product launches.

“The margin and PAT decline would be due to poor performance in Glenmark, Lupin and Sun Pharma,” ICICI Securities said.

Sun Pharma's earnings numbers may stay soft too due to continued pricing headwinds in Taro portfolio and FDA issues at Halol plant whereas Lupin results may be impacted due to competition in generic Fortamet and Glumetza.

Analysts say increased competition and pricing pressure would continue to weigh on growth for US-centric companies.

“We expect the companies to report 5.5 per cent revenue growth and 6.7 per cent PAT decline,” ICICI Securities stated.

Brokerage Edelweiss Securities expects the pharma sector’s Q3 2017-18 revenue to stay flat year-on-year while Ebitda and PAT are likely to go lower by 15 per cent and 19 per cent, respectively.

“US revenue is expected to decline 11 per cent YoY for the sector in constant currency (CC), as faster approvals, heightened competition and sustained pricing pressure would dent growth. We estimate domestic sales to grow 12 per cent YoY on a low base,” the brokerage said.

There are expectations that Natco Pharma would post lifetime high earnings for the quarter, driven by the launch of Copaxone generic. Cadila Healthcare and Aurobindo Pharma are seen to report a good set of numbers for the quarter in question.

However, Sun Pharma and Glenmark Pharma may register sharpest declines.

The USFDA granted the highest-ever approvals in a single quarter with 246 clearances in October-December.

“Faster approvals have led to heightened competition and pricing pressure, suppressing the overall sector’s earnings. However, approvals for complex generics with limited competition viz. gDoxil, gVytorin, gRenvela, gCopaxone and gLialda will aid Natco Pharma and Cadila Healthcare to grow profitably,” said Edelweiss.

Edelweiss further believes that Sun Pharma, Lupin and Dr Reddy’s Labs may report a fall of 13.1 per cent, 9.9 per cent and 3.6 per cent, respectively, in net sales. Reported profit of Sun Pharma, Lupin and Dr Reddy’s may also drop by 45.90 per cent, 31 per cent and 30 per cent in the December quarter compared with the previous year.