Pharmaceutical sector will reflect the full impact of COVID-19 restrictions on the back of pre-buying in chronic therapies in March quarter, underperformance in the acute segment due to delays in elective surgeries and shut-down by the majority of physicians
On the back of coronavirus-induced lockdown, decline in elective surgeries, fall in injectable sales, drop in patients visiting physicians, the pharma sector is likely to report weakness in April-June quarter earnings of the current fiscal. The Nifty Pharma index skyrocketed 42 per cent in the June quarter of the current fiscal as compared to a 10.8 per cent fall in the March quarter of the previous financial year. While the broader Nifty 50 index declined nearly 30 per cent in the January to March quarter of FY20 and soared 25 per cent in the first quarter of the financial year 2020-21. Analysts expect weak Q1, largely due to the pre-buying scenario witnessed in the fourth quarter of last fiscal in the wake of COVID-19 and non-functioning of outpatient departments (OPDs).
Market research firm AIOCD AWACS data suggested that IPM (Indian pharmaceutical market) declined by 11 per cent in April and 9 per cent in May. “The lockdown had a negative impact on acute/lifestyle segment sales as the majority of the doctors were closed in April and partially reopened in May,” said analysts at research and brokerage firm Nirmal Bang. The brokerage firm further added that there was an impact on the generation of new prescription as new patients were not incrementally diagnosed. “Prescription growth in the chronic segment should catch up in the remaining part of the year,” it said.
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The brokerage firm believes that Sanofi India, Sun Pharmaceuticals and Alembic Pharma, will not have much impact as they have a larger chronic portfolio. “Sun Pharma has a significant value in the US business coming from dermatology sales,” it said. For Alembic Pharma, it expects less impact from the pandemic-triggered lockdown in the US as a large part of its prescriptions comes from chronic drugs that will continue normally.
Another research and brokerage firm Philip Capital too believes that pharma sector will reflect the full impact of coronavirus restrictions on the back of pre-buying in chronic therapies in March quarter, underperformance in the acute segment due to delays in elective surgeries and shut-down by the majority of physicians/ hospital OPDs to impact new prescriptions. “Early Q1 also saw disruptions in the supply chain due to COVID having an effect on production too but it gradually improved to almost pre-COVID levels as the quarter progressed,” said Philip Capital in a report.
The brokerage firm has recommended to ‘buy’ four pharma stocks with an upside of up to 16 per cent. These include Aurobindo Pharma with 16 per cent gain as sustained US business performance aided by favourable currency movement will drive growth; Cadila Healthcare with 9.2 per cent jump owing to the continued growth in US base business and strategic focus on domestic brand sales compliment earnings; IPCA Laboratories with an upside of 8.3 per cent as steady performance in domestic formulations despite COVID and robust formulation exports will surprise earnings growth positively; and Sun Pharmaceuticals with an upside of 5 per cent.