Though the slowdown in domestic as well the global markets will cast a shadow over the margins of the major pharmaceutical companies in India for the third quarter, the firms are expected to report about 14-15% increase in their revenues for Q3 of FY2009. The domestic market growth moderated to 10.5% in Q3FY2009 as compared with 12-14% in the preceding quarters, according to analyst reports.
With a modest revenue growth and poor operating performance, the reported net profit of the companies would decline by 23.7%. This would be on account of the marked-to-market losses (owing to 3% depreciation in the Indian rupee against the US dollar) recorded by companies like Ranbaxy,
Orchid, Cadila Healthcare and Ipca Labs, which have outstanding foreign exchange liabilities. Higher interest and depreciation costs would also affect the reported profits in the case of Lupin, Opto Circuits, Elder Pharma and Surya Pharma. One-time incomes recorded in Q3FY2008 (in the case of Sun Pharma, Glenmark and Lupin) would also limit the net profit growth of these companies. Lupin?s net profit growth would also be affected. On excluding the non-recurring income/ expenses and the forex impact, we believe the adjusted net profit of the companies under our coverage would grow by 30%, said a recent report by broking firm Sharekhan. According to an Angel Broking report, the sector is expected to post robust growth on the sales front aided by high deprecation of the rupee during the period. The firms are expected to post 24.6% rise in sales mainly on the back of higher growth on the exports front. Rupee deprecation would also impact the results in mark-to-market losses for the companies with the foreign currency loans and FCCBs on the books. The companies would be impacted by translational losses due to FCCBs include Ranbaxy, Wockhardt and Orchid Chemicals. Mid-cap firms such as
Piramal Healthcare will ride higher growth in Indian CRAMS Business.
A low top line growth would also result in margin pressure for companies like Ranbaxy (USFDA ban to lead to decline in US business) and Orchid Pharma. On the other hand, Lupin and Piramal Healthcare will witness healthy margin expansion due to strong traction in revenues, a Sharekhan report said. Apart from the slowdown, the high-base of Q3 of FY2008 for companies such as Sun Pharma and Glenmark will be another reason for revenue decrease. The revenues of these two companies in third quarter of FY2008 were boosted by exclusivities and milestones respectively.
However, Sun would be the biggest beneficiary of the weaker rupee, since it has not hedged aggressively at higher levels of the rupee, relying more on the natural hedge mechanism.
Pharma firms are set to benefit from a depreciating rupee as they are primarily net exporters with exposure to the US dollar and euro. During the quarter, the US dollar and euro, on an average, y-o-y depreciated by 23.5% and 12.6%, respectively. However, the overall impact of the deprecation on profitability would be on the lower side as most of the companies that import significant portion of their raw material requirement, or which have taken currency hedges by way of forward contracts, and have foreign currency debt on their books, angel broking report said.
Pain to swallow
•Domestic market growth moderated to 10.5% in Q3FY2009
• Sun Pharma to be the biggest beneficiary of the weaker rupee
• Higher interest & depreciation costs to affect profits
• Lupin & Piramal to see healthy margin expansion
