Q3FY24 Results Preview: Pharmaceutical companies are expected to report decent earnings, according to brokerage house Kotak Institutional Equities’ Q3 Result Preview report on the healthcare sector.
The brokerage indicates that decent earnings will be led by continued stability in US generics pricing and a slight recovery in India, with traction across other branded markets amid a benign cost environment.
“In the US, we expect a 4% qoq overall sales growth for relevant companies in our pharma coverage. We expect US sales to improve qoq for all relevant companies, except CIPLA and LPC. For SUNP, apart from higher Taro sales, we factor in resumption of supplies from Mohali, leading to a slight increase in gPentasa volumes,” the brokerage said.
For LPC, the brokerage expects sequentially lower sales of gSpiriva in 3QFY24, after channel filling in the past quarter and lower gSuprep sales. “We factor in the gRevlimid launch in October 2023 for ARBP and bake in US$28 mn sales in 3QFY24,” it added.
“For CIPLA, we expect sequentially lower gRevlimid sales of US$28 mn. On the other hand, for DRRD, we bake in sequentially higher gRevlimid sales of US$110 mn. ExgRevlimid, we bake in 15% yoy (flat qoq) growth in overall US generics sales for relevant companies in our coverage. In 3QFY24, we bake in overall domestic sales growth of 10% yoy for relevant companies in our pharma coverage, after a muted 1HFY24 (8.5% yoy). We bake in domestic sales growth in the range of 8-14% yoy in 3QFY24, for our coverage, with TRP demonstrating the highest growth across its base business and in the acquired Curatio portfolio,” it revealed in its report.
For API companies, we build in the volume-led uptick qoq, factoring in a 7% qoq overall API sales growth, it added.
“While we expect API sales for CONCORDB and DIVIS to grow 13-18% yoy, we expect API sales for LAURUS to decline 11% yoy. Similarly, we expect sequentially higher CDMO sales for DIVIS and LAURUS, with contribution from new projects. Within our coverage, we bake in elevated R&D spends for most companies. We factor in sequentially higher R&D spends toward specialty for SUNP and ARBP, and higher R&D investments toward the complex pipeline for CIPLA, DRRD and GLAND. Owing to the Viatris acquisition by BIOS (effective November 29, 2022) and the Cenexi acquisition by GLAND (effective May 1, 2023), their yoy performance is not comparable. Overall, we bake in 11% yoy (flat qoq) growth in organic revenues in 3QFY24,” the brokerage revealed.
On the operating front, we expect 17% yoy (2% qoq) growth in overall organic EBITDA for our pharma coverage, with organic EBITDA margin improvement of 120 bps yoy, it added.
Meanwhile, brokerage firm Incred Equities maintain that from a 4 percent average growth in 1HFY24, Indian pharmaceutical market’s growth has recovered smartly and posted an average of 9.7 percent growth for Oct/Nov 2023 combined.
“This should reflect in strong India growth in 3QFY24F for the companies in our coverage universe. Barring Ajanta Pharma and Dr. Reddy’s Laboratories, we expect double-digit growth for all domestic market-focused companies under our coverage, it maintained.
The firm is also forcasted that barring Aurobindo Pharma, which will benefit from gRevlimid launch in Oct 2023, and Sun Pharmaceutical Industries or Sun Pharma, which is likely to see better US generics sales QoQ led by gVynanse contribution, most companies to report a flattish growth in the US market.
gRevlimid will continue to be an important driver, but its contribution will keep fluctuating QoQ. For Dr. Reddy’s Laboratories, we expect ex-gRevlimid US sales to decline QoQ by 3%, led by lower sales of gCiprodex (seasonality effect) and gSuboxone (price erosion), it maintained.
Health Care Services
The Kotak Institutional Equities expects a sequentially lower performance for the India-based hospitals in 3QFY24 due to seasonal weakness. To recall, despite being a seasonally
strong quarter, occupancies in 2QFY24 had been slightly impacted due to slower pick-up in acute, it maintained.
In 3QFY24, sales were impacted for a few days in Tamil Nadu and to an extent, Andhra Pradesh, due to the cyclone, which marginally impacted revenues of hospitals such
as APHS, RAINBOW and even, KIMS.
“For our hospitals under coverage, we forecast an overall topline growth of 12% yoy (flat qoq) in 3QFY24. For Aster DM, we expect GCC performance to improve sequentially, owing to seasonal strength in 2H. Overall, we expect an EBITDA growth of 12% yoy ((-)1.5% qoq) for our hospitals under coverage, with an EBITDA margin decline of 25 bps qoq (flat yoy) in 3QFY24,” it stated.
For diagnostic companies, it expects 16.5% yoy and 7.5% yoy growth in non-Covid sales for DLPL and METROHL, respectively. “The lower revenue growth in METROHL is largely due to the NACO contract (used to be 4-5% of sales) from February 2023. Overall, we bake in 14% qoq and 3% qoq declines in EBITDA for DLPL and METROHL, respectively, in 3QFY24,” it added.
