Non-covid-19 revenues push up healthcare firms’ growth
The healthcare sector — pharmaceuticals, hospitals and diagnostics — is likely to show signs of normalisation with noncovid-19 revenues growing in the September quarter of 2021-22.
Analysts predict a 6-12 per cent year-on-year (YOY) revenue growth for top pharmaceutical companies and a profit after tax (PAT) growth of up to 45 per cent, wherein some may also see profits declining. Hospitals are likely to report strong revenues as non-covid occupancy ramps up while the diagnostics space also stands to benefit from non-covid testing and a modest Covid-19 boost.
On a sequential basis, however, analysts expect hospital revenues to fall as the first quarter coincided with a massive second wave ravaging the country. Increasing share of non-covid-19 portfolio will drive the Q2, FY22 YOY sales, even as US generics business weakness continues, analysts said. “While growth rates have been erratic over the last 12-18 months owing to the pandemic, we see signs of recovery and further consolidation of share among the larger players,” an Ambit Capital report said.
For ICICI Direct’s healthcare universe (12 companies), the brokerage said that it expected the companies to post 5.5 per cent revenue growth YOY. The domestic formulations business is expected to grow about 14 per cent due to “continuous traction from the acute segment”, besides “normalised” trend in the chronic segment.
Edelweiss Research pointed out that the domestic recovery is visible in the pharma sector, and the core portfolio should clock mid-teens growth. “We expect a significant shift in growth momentum from Covid to noncovid portfolio on the back of receding active cases and growing vaccination drive across the country,” ICICI Direct said.
The fall in Covid-19 revenues may be a dampener for some firms, though. Cipla is a case in point. Sales of Covid-19 drugs like remdesivir, tocilizumab, inhalers, etc., were above normal during the pandemic. “The company benefited from higher demand for some OTC products (for example sanitisers) and trade generics. We had estimated Covid-19-related sales at ~700800 crore in Q1, FY22 (25-30 per cent of India revenues). We factor in 4 per cent growth YOY and a 20 per cent decline in sales QOQ,” Nomura analysts noted.
ICICI Direct said the US portfolio is expected to decline 2.2 per cent YOY, while Europe may grow 8.4 per cent YOY.
On a sequential basis, however, the US is expected to post around 3 per cent growth as volume recovery and launches would be partly offset by price erosion, for the sector. “Good launches at Alkem, Cadila Healthcare, Lupin apart from albuterol ramp up for Cipla and Lupin, Ilumiya update to offset Absorica decline for Sun Pharma — which would keep US steady,” noted Edelweiss analysts.
“Marketing channels have opened up post Covid-19. This would lead to growth in some overseas markets as well,” pointed out a senior executive at a Mumbai-based pharma firm. He, however, said the API segment would post flat growth.
ICICI Direct estimates APIS to clock a 2.8 per cent YOY growth.
For hospital operators, reduction in Covid-19 cases in the September quarter is likely to change the product mix more towards elective surgeries, which, in turn, would improve realisations.
Ambit Capital analysts said sector leaders in hospitals and diagnostics will benefit from market share consolidation.
The diagnostics sector, say Nomura analysts, can see a slowdown with a substantial decline in Covid-19 testing demand and lower RT-PCR pricing. As for hospitals, analysts expect a sequential drop in revenues, while YOY it would post good growth.
Brokerages said they expect overall hospital occupancies to remain 67-68 per cent driven by normalisation of non-covid-19 occupancies. Vaccination revenues, however, will decline in the September quarter.
Amongst diagnostics players, Dr Lal Pathlabs is expected to post an 18 per cent YOY growth, driven by a 30 per cent growth in their non-covid business.