Pharma: Good quarter, healthy prospects

Last Updated: Wed, Nov 21, 2012 05:13 hrs

Aided by a weak rupee, sales from niche opportunities, product launches and strong base business, Indian pharmaceutical majors reported a 30 per cent revenue growth for the quarter ended September 2012. Most major pharma companies turned out a strong performance in the quarter with results better than expectations.

While better product mix helped improve operating profit margins by over 200 points, sharp rise in interest and depreciation costs as well as taxes pegged back net profit growth, which came in at 18.5 per cent, according to a Sharekhan report. SBI Caps analysts say while recurring net profit was 15 per cent if the base business is considered, they are up 26 per cent if one-offs are taken into account. While operational performance has been good, the key overhang is on account of drug pricing.

The sector had underperformed the broader markets in September but has since recovered. The BSE Healthcare has given 28 per cent returns over the year, compared to nine per cent for the Sensex. Given revenue visibility and product pipeline most analysts prefer Sun Pharma, Dr Reddy's Labs and Ranbaxy as their top picks in the sector

Going ahead, Sharekhan analysts believe while growth may moderate in the December quarter (high domestic base) but strong pipelines, improved utilisation and contribution from acquisitions would ensure long-term growth. Most companies with the exception of Divi's have given strong guidance for FY13 revenues.

Weak rupee, one-off push
One-off opportunities, a 19 per cent depreciation of the rupee and good base business momentum/product launches in the US market helped Indian companies register a 40 per cent jump in revenue growth in the US market. Sales from Ranbaxy's first to file Actos and Sun Pharma's limited period opportunity for Lipidox as well as strong revenues from Taro boosted export revenues. Product launches and existing business growth for Dr Reddy's, Lupin and Glenmark also helped push up sales in the US market.

Domestic biz: Good show
A pick up in the acute segment and enhanced field force helped the domestic formulations business put up a strong show, growing 20 per cent year-on-year (y-o-y) in the quarter. Leading the growth charts were Glenmark Pharma and Cadila Healthcare recording 35 per cent and 28 per cent jump, respectively.

If the October numbers are any indication, the domestic segment is likely to grow at a good pace in the December quarter as well. Last month, domestic sales grew 17 per cent y-o-y driven by anti-infectives, anti-malarials and diabetes.

In Rs crore Sun Pharma Dr Reddy's Ranbaxy Lupin Cipla
Net sales 2,657 2,880 2,691 2,239 2,187
% change 40.3 27.0 28.4 29.0 25.0
Ebitda 1,168 690 349 446 672
% change 49.0 44.0 100.0 27.0 62.0
Net profit 733 439 239 290 500
% change 40.0 52.2 53.2 9.0 62.0
P/E FY13E (x) 22.0 19.0 14.0 22.0 18.5
E: Estimates % change is y-o-y Source: Analyst reports

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