Q2 earnings will be a mixed bag for pharma sector

By: | Updated: October 10, 2015 2:21 PM

After a tepid Q1 numbers, pharma companies may post mixed bag of performance in the second quarter of the ongoing financial year.

Pharma sectorThe past few quarters have seen a fewer number of product approvals in the US, as the US Food and Drug Administration (USFDA) has been busy overhauling the drug review process. (Thinkstock)

After a tepid Q1 numbers, pharma companies may post mixed bag of performance in the second quarter of the ongoing financial year. Pharma majors which are a part of the BSE Healthcare index registered a fall of 34 per cent year-on-year (YoY) overall net profit growth for the first quarter ended June 2015. However, overall net sales of the pharma companies grew 12.5 per cent YoY during the period.

For the first quarter quarter ended June 2015, Sun Pharma posted net profit of Rs 680.03 crore, down 47.40 per cent, against Rs 1,291.64 crore in the corresponding quarter a year ago. Net profit of Lupin and Glaxosmithkline Pharmaceuticals also slid 16.70 per cent YoY and 5.1 per cent YoY to Rs 524.73 crore and Rs 93.28 crore, respectively.

On the other hand, Wockhardt, Strides Arcolab and Cipla registered net profit growth of 444.3 per cent YoY, 117.9 per cent YoY and 104.50 per cent YoY to Rs 120.89 crore, Rs 41.37 crore and Rs 657.49 crore, respectively, during the same period.

According to Sharekhan, pharma players are expected to show a mixed bag of performance for the second quarter of 2015-16 (Q2FY2016) mainly due to a better product mix, less competition, adverse cross-currency movement and fewer product approvals for the regulated markets.

The brokerage house said, US will drive the overall growth with Dr Reddy’s Laboratories (DRL) having high benefits (Nexium and Decagon supplies to boost sales), Cipla (lower contribution from Nexium supply will be offset by supplies of Pulmicort Respules), Cadila Healthcare (price hike in HCQS to benefit) and Torrent Pharma (Abilify contribution along with robust growth in Elder Pharma’s portfolio) likely to see a robust growth as compared with other companies. Whereas, in case of Sun Pharmaceutical Industries (Sun Pharma), the consolidation of Ranbaxy Laboratories (Ranbaxy) has resulted into higher growth (Sun Pharma is not comparable on Y-o-Y basis). The domestic market growth is likely to remain mixed across the companies with Biocon and Cipla growing at low teens, while DRL, Lupin and Sun Pharma to grow in mid-high teens (DRL and Sun Pharma will have the effect of acquisitions).

Sharekhan believes that earnings of pharma companies are expected to post a 10 per cent growth. The operating profit margin is likely to contract by 260 basis points year-on-year (YoY) while the net profit of the sector is likely to improve by 10 per cent YoY for Q2FY2016. The profit growth for the quarter will be led by Biocon, Cadila Healthcare, Cipla, Granules India and Torrent Pharma while Lupin, Ipca Laboratories and Sun Pharma will see a decline in profit.

The past few quarters have seen a fewer number of product approvals in the US, as the US Food and Drug Administration (USFDA) has been busy overhauling the drug review process. Meanwhile, the abbreviated new drug application (ANDA) filings by generic players kept piling up and currently, on an average, nearly 40 per cent of ANDAs filed are yet to be approved by the USFDA. This has moderated the growth in the US market (the US market is the largest contributor to the revenues of our universe) for most of the players. However, Sharekhan expects a large chunk of the pending ANDAs to unfold from the second half of 2015-16 (H2FY2016) onwards and this will help in reviving the growth rates. Also, the growth is likely to be driven by the domestic market, which is witnessing a robust volume growth, and the introduction of new drugs. Therefore, while the brokerage house is positive on the long-term prospects of the sector, a few of the front-line players may see headwinds in the short term. Sharekhan advises to stay selective in Pharma space and preferred Cadila Healthcare, Cipla and Torrent Pharma over others.

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