Strong domestic market set to boost fourth quarter of Indian drugmakers

The Indian pharma market (IPM) grew 19% in March from a year ago, and 14% in the March quarter, despite a strong base, according to data from Motilal Oswal Financial Services. IPM’s growth continued to pick up pace regularly during FY23. After growth slipped into negative territory on a very high base in Q1 FY2023, it made a smart recovery of 8.4% year-on-year in Q2 FY2023 and 10.2% in Q3FY23.

Analysts at Kotak Institutional Equities said, “IPM growth was robust at 19.1% year-on-year in March 2023, supported by a favorable base; However, on a four-year basis, IPM reported a healthy 11.4% CAGR through March 2023. Analysts said in line with expectations, IPM growth of 7.9% in FY23 was supported by growth of 12.5% ​​in the second half of FY23. ,

The growth of the domestic market is being supported by both acute and chronic therapy. Chronic grew at a rate of 15% in March from a year ago, while acute registered a growth of 22%. Among treatments, anti-infectives and respiratory pain relievers led the increase. Aristo Pharma, JB Chemicals, FDC Ltd, Alkem Laboratories, Mankind Pharma, McLeods Pharmaceuticals, Alembic and Cipla registered higher growth rates as compared to the broad market.

Kotak data shows that among the top-25 firms- Abbott, Zydus, Torrent and Lupine have gained the most share in the past six months. Meanwhile, Alkem, McLeods and Cipla lost maximum share in the same period. Analysts at JM Financial Institutional Securities said the March quarter continues to be seasonally weak for Cipla.

Meanwhile, a healthy pace of domestic growth is giving analysts confidence in Indian drugmakers’ earnings growth, even as they remain optimistic about growth in the US market. In the US, management’s comments following third quarter results indicated continued pricing pressure, although this is easing slightly. Analysts are expecting lower competitive intensity in the US and new launches to help the performance of Indian firms. Still, most analysts remain cautiously optimistic.

For the March quarter, analysts Kunal Randeria and Ashita Jain at Nuwama Institutional Equities expect the US market to remain mixed. Sales of flu treatment drugs for Lupine and Ajanta Pharma may remain soft in the quarter, following good launches by Zydus Lifesciences and Aurobindo Pharma.

In addition, the Halol import alert may weigh on analysts at Sun Pharma. Sun Pharma’s Halol plant in Gujarat has been under the USFDA’s scanner for a long time.

Several companies, including Cipla and Lupine, are trying to address the USFDA’s observations.

Analysts at JMFL say Dr Reddy’s, Natco Pharma, Cipla and Zydus Life continue to be major gainers from the generic launch of Revlimid (for treatment of multiple myeloma). However, Cipla has seen a gradual decline in sales of respiratory inhaler albuterol, though there has been steady growth in lanreotide (hormone disorder treatment drug) and oncology drug leuprolide. In addition, there have been some write offs during the quarter.

Hence, it is the growth trend of the domestic market which can keep the earnings outlook stable for the companies.

Analysts at Kotak expect their coverage companies to register 10-14% domestic sales CAGR (compound annual growth rate) during FY2023-25, primarily driven by pricing and new launches. While the increased stability in US generics is a relief, continued momentum in domestic sales is critical to driving overall growth for brokerage coverage.