Domestic business, easing price pressure to boost pharma margins

Indian pharma companies are expected to post 14-15 per cent year-on-year (Y-O-Y) revenue growth in the fourth quarter of 2023-2024, analysts forecast, attributing this surge to robust domestic business and benefits from benign price erosion in the US.

The earnings before interest, taxes, depreciation, and amortization (Ebitda) growth is estimated to come in around 22-30 per cent Y-O-Y by several brokerages.

Meanwhile, as the fourth quarter is seasonally better for healthcare and diagnostic companies, revenues for hospitals and diagnostic companies overall is expected to grow by 13-15 per cent Y-O-Y, while the Ebitda is expected to grow by 25 per cent or so.

Nuvama Institutional Equities noted that generic Revlimid (used to treat multiple myeloma) will boost players like Natco, Zydus Lifesciences, Sun Pharmaceutical Industries, Dr Reddy’s Laboratories (DRL), Aurobindo etc.

Secondly, the analysts felt that benign price erosion in the US market will benefit generic players like Aurobindo.

At the same time, domestic business is expected to grow by 11 per cent Y-O-Y during the quarter, therefore, companies that have a strong India market presence like Torrent Pharma, Sun Pharma would tend to benefit from their chronic portfolios and addition of sales force.

The acute therapy or antiinfectives growth is expected to remain flat and that can affect Alkem which is an acutetherapy focused company in the domestic market. Overall, lower active pharmaceutical prices will improve gross margins Y-O-Y, Nuvama said. Prabhudas Lilladher analysts say, “We expect pharmaceuticals companies under our coverage to report another strong quarter with Ebitda growth of 22 per cent Y-O-Y (down 3 per cent Quarter on Quarter) mainly aided by new launches (generic Revlimid, generic Spiriva, etc) in US market; steady domestic business and higher margins.”

Analysts also expect the quarter to continue seeing easing of cost pressures which will thereby aid margins Y-O-Y

The companies are likely to witness steady base business in the US given a stable generic pricing environment coupled with new launches. On domestic formulation business, given seasonal weakness, acute and trade generic business may remain soft while chronic business may see steady growth.

Prabhudas Lilladher analysts expect Sun Pharma to report Ebitda growth of 9 per cent Y-O-Y led by continued momentum in the specialty portfolio.

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