Pharma Sector Results Preview: Q3FY13

Pharmaceuticals have seen a sharp run on the bourses in 2012. Towards the end of the calender year, the much-awaited new pharma pricing policy was approved, which brought some volatility in the pharma stocks and will impact about 10% of the total revenues of Indian companies in the sector.

CY12 has also seen the pharma sector reaping the benefits of the generics boom and heavy rupee depreciation, and Q3 would also see this advantage. The first to file (FTF) trigger was not seen during the quarter, but strong revenue growth is on the cards due to earlier product launches.

Dr Reddy’s Labs (DRL) is expected to report the best quarter for the fiscal so far on the back of new product launches (Montelukast Sodium, Amoxicillin, Metoprolol Succinate). During the quarter, DRL acquired a US-based pharma company Octo-Plus. This will show benefits after its consolidation, which is yet to be announced. It launched its version of Lipitor in July 2012, and therefore, some revenue upside is also expected during the quarter. In addition, the company expanded its UK operations in the areas of development and manufacturing of new chemical entities in Q3. Besides, the USFDA has also lifted the ban on one of its US facilities, which would reflect positively on its revenues. It will also benefit from a higher market share in Atorvastatin due to the drug recall by Ranbaxy in Nov 2012.

Sun Pharma, which posted strong revenues in the Sept quarter, will again see a jump as its products enjoy a good market share. In the last quarter, it has made provision of Rs 583 crore in view of potential damages that may occur due to the patent litigation pertaining to its ANDA for Protonix. Further developments in the matter are awaited. It also has acquired two companies (Dusa Pharma and URL Pharma) during the quarter, and hence, expects to see a good set of quarterly results.

Lupin, which is on a very strong growth path, may also report good numbers. During the quarter, the company launched a generic of Fenofibrate tablets (brand Tricor, US sales 1.26 billion). This is expected to add about Rs 20-25 crore to its topline. Earlier product launches (generics of Combivir, Yasmin, Levonorgestrel and Ethinyl Estradiol tablets) will also contribute to its surging revenues.

Glenmark had surprised the street in the last quarter with a huge growth in its net profit. We expect to see a similar trend in the Q3 results that are due to come in soon. During the Dec quarter, the company received an upfront payment of USD 6 million (Rs 33 crore). Besides, it also has settled one its Para IV litigation with Janssen Pharmaceuticals. It has seen a strong demand for the products developed by its research team, which would result in good topline growth for the quarter. In the Sept quarter, it had reported a growth rate of 30% in its domestic revenues thanks to high growth seen in the specialty drugs. This is expected to continue in the Dec quarter.

Drug major Ranbaxy, on the other hand, may record slowed growth in US revenues during the quarter due to the Atorvastatin recall. During the Dec quarter of the last fiscal, it had launched an FTF of Lipitor, which had yielded higher revenues, and hence, some base effect would also be seen. In the domestic market, it has already slowed down. Thus, it looks like a disappointing quarter for the company.

Cipla would see higher EBITDA margins from those seen during the Sept quarter. In the domestic market, it had reported growth in the anti-asthma, anti-biotic and cardiovascular therapy segments, which is expected to see a further rise. The company has already raised the year-end estimations to 12%-15%, and hence, strong revenues may come in.

The turnaround story of Wockhard may well continue into the Dec quarter. In Q2FY13, the company has notched up a growth of 254% in its profits, which was due to the strong revenues coming from its US generics business. It also reported strong growth in EBITDA margins, which is expected to continue.

Strides Arcolab will maintain a strong topline and bottomline as it operates in the specialty injectables segment. It also had acquired two USFDA approved assembly lines of a private company, which is expected to boost revenues.

Cadila Healthcare may have a disappointing quarter, as there were no new big product launches. However, we expect to see steady margins for the company.

Overall, strong revenues and profit growth with some margin expansion is expected for companies in the sector in the Dec quarter.