1. Weak growth in US business to hit Indian pharma sector

Weak growth in US business to hit Indian pharma sector

We expect another muted quarter for the pharma sector on the back of weak growth in US business due to competition and pricing erosion.

By: | New Delhi | Published: April 8, 2017 4:10 AM
We expect Natco, Narayana and Cipla to report strong results while most large caps should report weak results. (Reuters)

We expect another muted quarter for the pharma sector on the back of weak growth in US business due to competition and pricing erosion. Inspection status of facilities, pricing, and FY18 guidance would likely dominate results. We would also watch for comments around the specialty business for various companies. We expect Natco, Narayana and Cipla to report strong results while most large caps should report weak results.

Overall we expect revenue growth of 8% y-o-y and margins to decline c30bps y-o-y. US business growth will likely remain muted despite new launches due to price erosion in the base business and increased competition in key products.

Approvals by USFDA were at one of their best levels in Q4FY17 at 173 ANDAs approved. The share of Indian companies increased in FY17 to 36.8% vs 34.6% in FY16 Approval pace though is still below filing rate. As we have stated earlier, with FDA commitments of 10m approval cycle, quality of filing will need to gain priority over quantity. This is highlighted in the fact that despite increased approvals for companies, growth in US business has remained subdued as key approvals have seen large delays.

The recent round of inspections has again raised concerns for the sector. It also indicates that FDA is looking more deeply at various practices and past is no guidance for future. We believe that most of the issues are cultural and will require significant work to change. We believe the sector will need another 12-18 months to upgrade processes and practices across facilities.

The key focus in the results will be commentary on pricing scenario in US and also guidance for growth/margins/ launches in FY18. Additionally, we would also look for any commentary on the recent spate of inspection outcomes across the sector.

We expect Sun to report 5% revenue growth and margin decline of 400bps y-o-y. The key to watch will be price and margin erosion in Taro and any outlook on the same.

We expect Lupin to report 8% revenue growth and margin decline of 600bps y-o-y. This will be led by increased competition in Glumetza and Fortamet. We will look for commentary on FY18 launch guidance and updates on key products.

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