US revenues, cost savings to bolster pharma results

Brokerages expect a good third quarter performance from pharmaceutical companies, driven by good growth in the US market, recovery in branded markets, continued cost savings and low bases for select companies, such as Lupin.

ICICI Securities expects moderate top line growth of around 8 per cent, led by India business and marginal growth in US business with 130 basis points year-on-year (YoY) improvement in Ebitda margin to 22 per cent.

Emkay Global expects top pharma companies YoY revenue, Ebitda and earnings growth of 9 per cent, 21 per cent and 33 per cent, respectively.

"Cipla and Dr Reddy's have the potential to beat our and consensus estimates," Emkay Global said.

"We expect easing of lockdown to support some recovery in acute portfolio and injectable products. US revenues may witness marginal growth sequentially, led by improvement in volumes of injectables, specialty portfolio and new launches. We estimate

India businesses to grow in the high single digit as seen in secondary sales data, ICICI Securities said.

"Growth in the US will be driven by new product approvals/launches; benign pricing environment due to ongoing Covid-19-related uncertainty; and continued ramp-up in limited competition and specialty products," Emkay Global said.

"Quarter-on-quarter, we expect a recovery in Sun Pharma's specialty business and ramp-up in limited competition product market share for Cipla and Lupin. Dr Reddy's,

Aurobindo and Cadila are expected to benefit from product shortages and new product launches," according to Emkay Global.

"Companies with a good Covid-19 portfolio such as Cipla, Dr Reddy's and Cadila are expected to beat the Indian Pharma Market growth in third quarter (Q3). Ipca is also expected to outperform the market due to its leading brand position."

Cost savings due to hampered field-force activity in the branded market will be the major driver of YoY Ebitda margin improvement.

However, with the easing of Covid-19-related restrictions, marketing and selling expenses are expected to move up.

Key factors to watch out during management commentary, according to ICICI Securities, are growth outlook in India for the industry and respective companies, update on restart of USFDA inspections, price scenario in base US business and traction in specialty products, growth in emerging markets with demand outlook and sustainability of recovery in diagnostics and hospitals.