Robust demand from domestic and emerging-markets abroad, increased currency of specialty products and price hikes are expected to have allowed pharma companies to post healthy topline and bottomline growth in the fourth quarter of FY24.
As per ICICI Securities, top 16 pharma companies may have posted 9.8% year-on-year growth in revenues and a staggering 34.1% growth in PAT (profit after tax) in Q4FY24.
Other analysts too are bullish on the sector. For instance, a report by KRChoksey Research said that Sun Pharma, Cipla, and Zydus Lifesciences are expected to exhibit market beating performance on the back of price increases and new product launches as well as growth in both chronic and acute segments.
“The chronic segment which was lagging behind the acute till a few quarters ago have also picked up pace, and now both segments are growing. The growth in chronic segment usually results in better profitability,” Unnati Jadhav, research analyst at KRChoksey Research told FE. Pharma research firm IQVIA has pegged the chronic market share at 38% as on December 2023. Cardiac, anti-diabetes and central nervous system (CNS) account for a bulk of the chronic category.
Analyst at Yes Securities said that “the US business is expected to exhibit moderate growth as operating environment remains presumably benign. India business for most companies especially chronic focused ones would grow 9-11% year-on-year while acute heavy ones might have to endure mid-single digit growth.”
Meanwhile, specialty products and complex generics are likely to help pharma companies in increasing their profit margins. As per brokerage Prabhudas Lilladher, companies like Divi’s and Zydus Lifesciences will see quarter-on-quarter margin improvement aided by better product mix and higher gRevlimid (a generic version of cancer drug Revlimid) sales, respectively.
“The competitive intensity is expected to increase for the regular ANDAs (abbreviated new drug application) in the US though, partially offset by increased volume share of complex generics, biosimilar and specialty products in the market. We expect Lupin, Aurobindo Pharma, Granules India, Divi’s Labs, Dr Reddy’s, and Cipla to post strong earnings growth driven by recovery in their profitability on the back of improved products mix and new product launches,” said a report by KRChoksey Research.
The pharma companies are also expected to benefit from the lower costs. For instance, ICICI Securities said that the low prices of input materials is likely to increase the gross margins of 16 firms by 130 basis points (bps). “Companies are further rationalising their R&D budgets, which, coupled with operating leverage, may drive an overall improvement of 190 bps in EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin,” said ICICI Securities report.
