Q1 results preview: Here’s why pharma companies are expected to show improvement

In its report, the brokerage identified five important variables that would affect the company's Q1FY24 results. According to the brokerage, the impact of the National List of Essential Medicines (NLEM) combined with a delayed monsoon will slow India's economic growth, especially for acute heavyweights like Alkem Laboratories Ltd.

The brokerage firm anticipates internal growth of 8% year-over-year (YoY), with Torrent Pharmaceuticals Ltd. and Cipla Ltd taking the top spots.

Aurobindo Pharma Ltd can benefit from the volume growth and continued price erosion taking place in the US In addition, Dr Reddy's Laboratories Ltd has made successful launches.

In addition, the brokerage claimed that gRevlimid boosters at Dr. Reddy's Laboratories Ltd, Zydus Lifesciences Ltd, Sun Pharmaceutical Industries Ltd, Cipla Ltd and Natco Pharma will help maintain US stability.

"For Sun Pharmaceutical Industries Ltd, gRevlimid is likely to offset pressure in US generics due to Halol import alert and Specialty Rx growth, particularly Ilumya seems to have picked up. Expect double digit growth in exports outside the US in all companies. The reduction in API costs should help gross margin, a great benefit to reflect in the coming quarters," the brokerage said in its report.

These are the comments made by the brokerage for the large-cap stocks it covered in Q1FY24.

Sun Pharmaceutical Industries: The brokerage anticipates domestic formulations to remain weak (+8% yoy) due to the impact of NPPA, patent expirations on two major Merck-licensed products, and seasonal weakness in acute medications.

"We expect headline EBITDA margins of around 24% (-100 bps yoy) impacted in part by Halol remediation cost, Concert cost consolidation and cost inflation. US and gRevlimid revenues (+4% QoQ excluding license revenue in Q4). US specialty business remains flat," the brokerage said.

Aurobindo Pharma: The brokerage anticipated in its analysis that new product launches and increased market share would boost US sales by 4% qoq to approximately $385 million. Europe's base growth is forecast to be 5% lower qoq due to recapture taxes in several European nations. Expect low single-digit QoQ growth in the API business. EBITDA margin at 16.2%, +70bps QoQ, and lower input prices are projected to have a positive impact on gross margin.

Cipla: The brokerage house expects Cipla to have a stable quarter. India was helped by a robust economy, new products and price increases. US to USD195mn, consistent with the recommended basis. While lanreotide's share and price erosion appear to be constant, albuterol's share appears to be declining.

"With the worst to come at SAGA, expect revenue to improve 7% yoy/2% quarterly. Expect gross margin to hold steady at 64% as the benefit of increased pricing, normalization of input and freight costs EBITDA margin at ~22% helped by strong brand contribution and well within guidance range," the brokerage said in its report.

Dr. Reddy Laboratories: "North America revenue of about $370 million, +24% qoq assuming higher gRevlimid sales ($100 million vs. $65 million), Mayne Pharma acquisition and stake gain in gSuboxone offset by partly due to price erosion and loss of stake in gCiprodex.

However, India will optically decline 13% yoy, adjusted for one-off revenue from brand sales and lost sales from divested brands, India will grow 9% yoy. Adjusted EBITDA margin at 26%, +480bps QoQ due to higher expected gRevlimid sales and therefore higher contribution to earnings,” the brokerage said.

Zydus Life Sciences: The brokerage expects US revenue to grow 2% qoq on a solid basis, mainly as a result of an increase in Trokendi XR and strong sales of gRevlimid. Mesalamine performance is currently stable, with market shares for Lialda (44%) and gApriso (19%) largely holding steady. Asacol HD volumes, however, are still declining in high single digits.

“In domestic formulations, the company is expected to grow 9% year-on-year and the wellness business is expected to see seasonal tailwinds. We estimate strong EBITDA margins of ~25-26% +500 bps YoY due to high value products despite the impact of slightly higher R&D," the brokerage said.

Lupine: Based on the brokerage estimate, sales are projected to increase 17% year-over-year, excluding milestone revenue of $25 million. Expect the US to hold steady at around $178 million as increased volumes and a boost in Suprep's market share offset price erosion.

The company has kept its albuterol market share stable. As the economy gradually improves and new sales forces start to contribute, domestic revenue is forecast to expand at a rate of 8% yoy. EBITDA margin is expected to remain at 12–13% (same quarter).

Torrent Pharma: “We model India formulations growth at 16% YoY with core business expected to grow 10%. US revenue was flat in the quarter at $34 million, while Brazil is expected to post 14% year-over-year growth driven by new launches last year, as well as a strong increase in market share. market. Gross margins are expected to remain stable at 71.8%, while EBITDA margin is expected at 29.3%, -100 bp yoy affected by a stronger sales force”, said the brokerage.

Alkem Laboratories: Due to monsoon delays, which weighed on acute prescriptions, the brokerage forecasts a weak first quarter. India is forecast to rise 7-8% YoY. US sales will generally be flat on a quarterly basis. The brokerage anticipates a modest EBITDA margin of 11% as reduced brand sales are partially offset by lower input costs.

Updated: Jul 11, 2023, 09:27 am IST