We expect a modest 11.3% year-on-year sales growth in Q2FY12, largely led by growth in US formulations. We believe Q2FY12 earnings will re-set expectations on domestic formulations growth. While the recent bounce in August, as per the All-India Organisation of Chemists and Druggists, has been comforting, the continuing slowdown in a few major companies is likely to hurt near-term earnings. We expect a moderate 10% growth for most front-line companies, except Lupin and Sun Pharma.
Putting aside upsides from the Taro consolidation for Sun Pharma, we expect US formulations to be a material driver for Dr Reddy’s, given recent launches. Dr Reddy’s recent launches in fondaparinux, Allegra D-24 OTC and rivastigmine should bring material benefit in Q2FY12. Additionally, US sales for Torrent Pharma and Cadila Healthcare may remain strong on the back of market share ramp-up in certain molecules.
We expect margins at Dr Reddy’s and Cipla to improve on the back of a better product mix and better utilisation of the SEZ Indore facility, respectively. Additionally, we expect Biocon ex-Axicorp to report strong margin improvement in y-o-y terms. We expect margins to decline at Ipca due to slower growth in the domestic business. Sun Pharma is also expected show lower reported margins on a high base from the Eloxatin spill-over in Q2FY11.
We expect Ranbaxy?s outstanding hedges to feel the sharp impact of the 9% depreciation of the INR against the USD. Additionally, this will result in higher translation losses for some companies with a higher share of foreign currency-denominated loans. However, we expect this will be partly offset by gain on receivables and inventory. Overall, we expect Indian companies to benefit on net foreign exchange exposure from INR depreciation, given the high share of
exports in sales.
?HSBC Global Research