Pharma sector Q1 review: Growth led by US market, gRevlimid sales; India growth slips on price cuts, muted volumes

Pharmaceutical industry reported revenue growth of ~16 per cent on-year and 15 per cent on-quarter to Rs 647.2 billion in Q1FY24, according to ICICI Securities. Growth was led by the US market and traction in gRevlimid sales. “Windfall from the ongoing drug shortages and traction in gRevlimid sales in the US drove 16 per cent, 45 per cent, 41 per cent on-year increase in revenue/ EBITDA/ PAT in Q1FY24 for the pharma companies under our coverage,” said Abdulkader Puranwala from ICICI Securities. While gross margins rose by 300 bps, EBITDA margins increased by 440 bps on-year to 65.3 per cent and 23.8 per cent respectively on an aggregate basis.

Gross margin grew 300 bps YoY to a 5-year high of 65.3 per cent in Q1 due to product exclusivities in the US and softening of raw material prices. “Combined profit for our coverage universe was up 41 per cent YoY (24 per cent QoQ) to Rs 94.9 bn driven by improvement in overall operating performance. On a low base, Alembic Pharma, Lupin and Strides reported fastest growth in EBITDA while the same for Dr Reddy’s, Zydus Lifesciences, Cipla and Sun Pharma was driven mainly by better sales of gRevlimid,” said ICICI Securities.

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Further, US performance was also driven by product shortages on account of exit of a few bankrupt companies and lesser intensity of price erosion. “Within our coverage universe, Dr Reddy’s grew the fastest, driven by gRevlimid and better volumes of existing products. Glenmark and Strides were the only companies to report a dip on sequential basis,” it said.

While the pharma industry growth was led by the US market and it will continue for a couple of more quarters, India took a back seat due to NLEM-led price increase and softening of raw material prices which is expected to further sweeten the margin profile from Q1FY24, ICICI Securities said. “India business of the covered companies grew at a slower pace of 7 per cent YoY in Q1FY24 to Rs 195.6 bn as against the market growth of 9 per cent. Growth was impacted due to mandated price cuts on the NLEM portfolio and muted traction in volume. Rebound in the domestic oncology market benefited Natco (up 50 per cent) and Zydus (up 9 per cent) while M&As fuelled 15 per cent and 17 per cent growth for JB Chemicals and Torrent Pharma respectively. Organic growth for Ajanta Pharma, Abbott India and Cipla stood between ~11-14 per cent. Barring Abbott, performance by the MNC businesses was tepid and they grew their overall revenue by 1-6 per cent YoY,” it said. NLEM-linked price hike of 12.2% should boost domestic growth and profitability Q2FY24 onwards.

Going forward

According to experts, better supplies from China, extinguishing of high-priced inventory in the channel and price increase in India will aid further recovery in margins, going forward. “We expect US generic revenues to recover sharply over FY 2024-25 on the back of new launches by all the major companies. Growth in domestic pharmaceutical revenues of all the major companies will be moderate. Lower RM prices and easing US generic pricing conditions will lead to higher gross and EBITDA margins. Net profits of the pharmaceutical companies are likely to grow 14 per cent in FY24 and 18 per cent in FY25,” said Purvi Shah, DVP – Fundamental Research, Kotak Securities Ltd.

Here is a look at how major pharmaceutical companies performed during Q1FY24:

Mankind Pharma reported a 66.4 per cent on-year rise in net profit for the quarter ended June 2023 to Rs 487 crore, Its revenue was at Rs 2,579 crore, up 18.3 per cent. The company EBITDA stood at Rs 660 crore, up 43 per cent on-year, with margins expanding by 450 basis points to 25.6 per cent.

Sun Pharmaceutical Industries posted its fiscal first quarter profit at Rs 2022.54 crore, down 1.9 per cent in comparison to Rs 2060.88 crore during the first quarter of FY23, on lower profitability at Taro. It posted revenue from operations at Rs 11,940.84 crore, up 11 per cent YoY. The company’s EBITDA stood at Rs 3332 crore, largely driven by higher-than-expected gRevlimid sales (lumpy in nature) and lower R&D spending.

Cipla posted a profit increase of 45.1 per cent at Rs 995.70 crore in comparison to Rs 686.40 crore during the corresponding quarter of FY23. It posted revenue from operations at Rs 6,328.89 crore, up 17.7 per cent on year from Rs 5,375.19 crore during the first quarter of FY23, on performance in India, US and South Africa.

Zydus Lifesciences posted its fiscal first quarter profit at Rs 1086.90 crore, up 109.7 per cent as against Rs 518.30 crore during the corresponding quarter of FY23. It posted revenue from operations at Rs 5139.60 crore, up 29.6 per cent on-year. The company EBITDA stood at Rs 1505.3 crore.

Strides Pharma’s Q1 revenue came in at Rs 932 crore from Rs 945.7 cr in Q1FY23, down 1 per cent YoY.The company also reported highest-ever EBITDA of Rs 168.6 crore in Q1FY24 from Rs 65.7 crore clocked in Q1FY23 driven by cost optimisation. The significant optimisation of operating costs resulted in improved operating leverage and key businesses delivered steady performance, cost control measures yielding results, it said.