Pharma companies growth may remain moderate in Q2: BofA-ML

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New Delhi | Updated: September 23, 2015 2:57:03 PM

Pharmaceuticals sector's growth momentum is likely to remain moderate in the second quarter of the ongoing financial year (2QFY16), says Bank of America-Merrill Lynch (BofA-ML) in a research report.

bse healthcare indexPharmaceuticals sector’s growth momentum is likely to remain moderate in the second quarter of the ongoing financial year (2QFY16), says Bank of America-Merrill Lynch (BofA-ML) in a research report. (Reuters)

Pharmaceuticals sector’s growth momentum is likely to remain moderate in the second quarter of the ongoing financial year (2QFY16), says Bank of America-Merrill Lynch (BofA-ML) in a research report. The corporate banking arm of the US institution sees 8 per cent sales growth overall in 2QFY16.

For the first quarter ended June 2015, overall consolidated net sales and operating profit of companies in the BSE Healthcare index jumped 12.56 per cent year-on-year (Y-o-Y) and 18.14 per cent Y-o-Y, respectively. However, total net profit of pharma companies declined 35 per cent Y-o-Y.

BofA-ML sees operating profit and net profit growth (ex Sun Pharma and Cipla) of 13 per cent and 14 per cent in 2QFY16E.

“Higher base, fewer launches, and incremental competition in some key high-value products are impacting revenue growth and net profit growth is hit by price erosion in base portfolio, higher research and development cost and emerging markets currency woes,” the report said.

During April-June 2015, Cipla posted a consolidated net sales of Rs 3,776.82 crore, up 42.67 per cent, against Rs 2,647.20 crore in the corresponding quarter a year ago. Cadila Healthcare and Sun Pharmaceutical Industries registered 17.71 per cent Y-o-Y and 3.31 per cent Y-o-Y growth in net sales figures. Net profit of Cipla and Cadila Healthcare jumped 104.46 per cent Y-o-Y and 46.05 per cent Y-o-Y. On the other hand, bottomline of Sun Pharmaceuticals declined 47.35 per cent Y-o-Y at Rs 680.03 crore.

BofA sees strong traction in Cipla (PAT up 97 per cent Y-o-Y due to gNexium) and Cadila (PAT up 28 per cent Y-o-Y due to strong HCQ price). Dr Reddy’s Laboratories and Glenmark Pharmaceuticals could be impacted by their Russia/ Venezuela exposure despite their health US growth. Sun Pharma will be hit due to Ranbaxy consolidation, fewer launches and higher base effect in the US.

Since the beginning of the ongoing financial year, the share price of Sun Pharma declined 16.47 per cent to Rs 900.95 on September 22. Sensex declined 9.2 per cent during the same period.

Dr Reddys Laboratories registered net profit growth of 13.88 per cent Y-o-Y at Rs 620.73 for the quarter ended June 2015. However, net profit of Glenmark Pharmaceuticals declined 3.60 per cent Y-o-Y to Rs 178.24 crore during the same period.

However, the financial institution believe strong dollar can act as a positive catalyst for domestic pharmaceutical companies, currency devaluation in emerging markets could offset some of this gain.

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