Positive Q1 outlook for pharmas
After rallying during the pandemic period on Covid19 vaccine related developments and investors buying pharma stocks as overall healthcare became supreme, Indian drug making companies will be judged by their first quarter performance and management commentary.
The first quarter is likely to be a weak quarter for the sector, with flat revenues and a year-on-year decline in earnings, owing to lockdowns across the world. However, companies are likely to benefit from a stronger dollar, lower operational expenses and higher US approvals during the quarter.
“On an average, INR has depreciated by around 4 per cent quarter-on-quarter against the US dollar and around 5 per cent QoQ against the euro. Indian generics are net beneficiaries of INR depreciation against US dollar/euro, which will reflect in higher realisations. Further, with little activity on marketing/travelling, we expect operational expenses to come off as well. This will be partially negated by the sharp depreciation in emerging market currencies against INR of Brazil and Russia as sourcing is largely from India and costs are INR denominated,” said Praful Bohra, analyst, Emkay Financial Services.
“API (active pharmaceutical ingredient) prices have also increased in Q1, due to higher local sourcing and price hikes in a few products from China. This will impact gross margins to some extent,” Bohra said.
Some gains and deleveraging in the fourth quarter of FY20 is likely to keep pharma sector’s outlook positive, said Fitch Ratings. “Indian pharmaceutical companies' improved profitability on growth in key markets and
Global cost-cutting efforts in the fourth quarter of the financial year ended March 2020 (4QFY20) and their deleveraging efforts will strengthen financial flexibility ahead of the full impact of the coronavirus,” said Fitch.
Most of India's leading pharma companies reported an increase in revenue ranging from high-single to mid-double digits, benefitting from growth in the US and Europe and continued momentum in the domestic market. Aurobindo Pharma and Dr. Reddy's Laboratories reported double-digit YoY revenue growth, driven by new product launches in the US and Europe. The 9 per cent YoY decline in Lupin’s North American revenue in 4Q was largely offset by a 13 per cent rise in India, Fitch said.