Improved US performance to pep up Indian pharma Q1 show

Analysts at Jefferies India Private Ltd expect strong US but tepid India growth for pharma companies during Q1. In the US, analysts at Jefferies expect sequential improvement for all the major exporters except Cipla.

Referring to the IQVIA prescription and sales data for the US, analysts said Dr Reddy’s has strong sales traction in Revlimid generics and Suboxone (narcotic treatment drug) generics, while Zydus Lifesciences is benefiting from higher sales in Atrovastatin (cholesterol drug) and Revli-mid generics. At the same time, Zydus is facing some price erosion in migraine tre-atment Trokendi XR as new players have entered market.

Growth in Q1 was affected by the high base of last year, inclusion of products under the National List of Essential Medicines (NLEM) and a decline in prices of certain products under NLEM, said analysts at Motilal Oswal Financial Services.

Some analysts also attributed the subdued growth to delay in monsoon, in addition to the high base. The IPM had seen a strong 13.8% year-on-year (y-o-y) growth during the same month last year, which was largely led by a strong growth in acute segment sales such as that of antibiotics, pain relief, etc. The delayed mons-oon this year, however, meant that sales of acute segment products was muted in June.

The lower IPM growth in June also impacted the pharma market growth during the April-June quarter. Analysts at Kotak Institutional Equities expect the IPM growth to be at 8.5% year-on-year during Q1 FY24. On a four-year basis, IPM reported a 9.4% sales CAGR in June 2023.

This is likely to have a bearing on the June quarter performance of the domestic pharma companies too. However, analysts remain positive on US growth prospects of Indian pharma companies during Q1, led by new launches.

The launch of generics of multiple myeloma drug Revlimid by many companies in the US market is likely to be a key driver. The new launches will also help mitigate the impact of higher competitive intensity. Among other factors that are likely to support export growth are declining shipping costs and a stronger dollar.

Analysts at Axis Securities also expect the aggregate US revenue to grow by 20% y-o-y despite high single-digit price erosion in the industry, which was partially offset by the launch of new products such as Revlimid generics. In India, IPM growth of 8.5% was impacted by delayed monsoon this year, that also adversely impacted seasonal demand for acute products, they added.

Among companies with higher exposure to acute segment, analysts at Jefferies factor in low growth for Dr Reddy’s (around 7% year-on-year), for Lupin around 7% y-o-y growth, which may be impacted because of slower growth in the diabetic portfolio. Companies like JB Pharma and Torrent Pharma are expected to see mid-teens growth due to acquisition of portfolios.

ICICI Securities expects the India business of its coverage companies to grow at 8% y-o-y in Q1 FY24, while the aggregate US sales of coverage universe is likely to grow 24% y-o-y. The overall revenues for their coverage companies is pegged at 15% year-on-year while net profit growth is pegged at 28.4% year-on-year.

To be sure, the operating environment in the US still remains volatile. New supply opportunities are emerging in the US due to a pullback by some peers, said analysts at HSBC Securities and Capital Markets (India) Pvt Ltd. But, FDA plant inspections have led to volatility in stock price, while product-specific competition-led price pressure continues, they added. Hence, portfolio differentiation rem-ains key for sustainable gro-wth, analysts from HSBC said.

Also, even though improved US generics pricing is a respite, sustained momentum in domestic sales is critical to drive overall growth for companies, said analysts.

Updated: 17 Jul 2023, 10:31 PM IST