26 % Growth Expected in 2014 Fiscal in Indian Pharma Sector
Sales by Indian drugmakers are set to show an average rise of 26% for the third quarter of FY 2014, ending December 2013, according to new forecasts from Bank of America Merrill Lynch.
The pharma sector may witness a sales growth of 26 per cent during the third quarter of FY14, according to Bank of America Merrill Lynch (BoA-ML).
The research firm said it expects strong base business growth at companies such as Sun Pharma, Dr Reddy’s, Lupin and Aurobindo Pharma due to increasing number of limited-competition products, which renders higher sustainable growth.
“We expect growth momentum for the pharma universe to sustain with core sales growth of 26%, EBITDA growth of 37% and PAT growth of 40%. Revenue growth will largely be driven by continued momentum in the US, strong growth in RoW markets, higher currency realisation (up 14% YoY), and strong margin traction will drive bottom line growth in Q3.” it said.
On the domestic front, after two quarters of dismal performance due to trade channel disturbances, there’s some recovery in volume with double-digit growth for the quarter. “Core EBITDA margins are likely to expand by 180 bps to 23.8%, driven by higher contribution from niche launches, improved product mix, and currency benefits,” it said.
According to BoA-ML, while a price cut on NLEM (National List of Essential Medicines) products is likely to impact margins in the domestic business, most firms have already hiked prices on non-NLEM products and hence margin compression will be limited to a few large affected players, said Manoj Garg, Research Analyst, DSP Merrill Lynch (India).
“We see continued accretion from limited competition/complex products including Lipodox and Doxycycline of Sun Pharma, Tricor and Zymaxid of Lupin, Vidaza, and Dacogen of Dr Reddy’s. We believe incremental launches in niche segments will continue to drive growth in the ensuing quarters,” it said.
“Despite low contribution from domestic market, we expect core operating margins to expand by 180 bps to 23.8 per cent, led by higher contribution from niche launches, improved business mix, and favourable currency. We see strong margin expansion for Dr Reddy’s (up 300 basis points year-on-year),” Garg said.
The bank is also expecting Indian drugmakers to report rises in profit after tax of around 40% for the quarter, plus growth in earnings before interest, taxes, depreciation and amortisation (EBITDA) averaging 37%. Major drivers for this fast growth include continued momentum in the US, strong growth in RoW (rest of world) markets, higher currency realisation and strong margin traction, it says.Indian drugmakers’ domestic market sales are also forecast to show some recovery in volume, reaching double-digit growth “after two quarters of dismal performance due to trade channel disturbances,” says the study. It expects price cuts for products included on India’s National List of Essential Medicines (NLEM) to have had only limited impact during the quarter, because most firms had already raised the prices of non-NLEM products.
For individual companies, the report forecasts particularly strong advances during the quarter for Aurobindo Pharma, Dr Reddy’s, Lupin and Sun Pharma, while growth at Cadila, Glenmark and Ranbaxy will be “moderate,” it says.Other new forecasts, from Kotak Institutional Equities, are for drugmakers to report year-on-year core profit increases averaging more than 15% for the quarter. The highest increases will be at Sun Pharma, with net profit growth up 45%, and Dr Reddy’s, rising 33%, says Kotak, which expects this growth to be driven mainly by continuing strong generic launches in the US and the currency benefit, and that these will offset continued slow growth on the domestic market.
Meantime, a new report from Business Monitor International (BMI) says that India’s large population and substantial unmet medical needs represent strong commercial opportunities for drugmakers, but that the government is impeding the sector’s development, mainly through extensive bureaucracy and poor policy planning.Some of the problems for industry relate to the regulation of clinical trials, pricing of patented and essential drugs, generally low government involvement in healthcare and foreign direct investments (FDI), says BMI.
– India’s Department of Industrial Policy and Promotion (DIPP) reported this month that FDI in the pharmaceutical sector soared 86.5% to a value of $1.08 billion during April-October 2013, from $580 million reported for the same period of 2012. DIPP has been calling for tighter controls on FDI following concerns at the number of takeovers by multinationals of Indian firms making “rare and critical” medicines, but this proposal has been rejected by the government.
