We are
positive on the pharmaceutical sector and expect most companies to
report a good earnings growth in the July-September quarter,
driven by the strong domestic growth and steady contributions from
exports.
The domestic
market has witnessed a strong growth in the quarter on the back of
aggressive new product launches and the continued focus of the
companies in the high growth chronic lifestyle segments. The
growth has been largely volume driven, indicating the strong
demand for pharmaceutical drugs across the nation. The companies
with a wider domestic presence like Cipla, Sun Pharma and Cadila
Healthcare are likely to be benefited from the
development.
The show on
the export front is also expected to be encouraging driven by new
launches of generics or supplying of abbreviated pharmaceutical
ingredients (APIs) to the global generic players. For example,
Ranbaxy is expected to derive strong sales from the launch of
generic Zocor under the 180-day exclusivity period, while
Dr Reddy's Lab may witness revenue upside from the sale of
Zocor and Proscar under authorised generic terms with Merck
Inc. Similarly, Cipla is likely to strengthen its exports by
supplying APIs of Zoloft and Proscar to TEVA.
Further, with a greater number of companies spreading their wings
globally, Indian companies are likely to witness strong earnings
in Q2FY2007.
Pricing
pressures in the key markets of the USA and Europe are expected to
continue, as more and more players are entering the generic
industry. However, we expect the Indian generic companies to
remain competitive by vertically integrating themselves in most
products and increasing their global presence.
On the
domestic front, the contentious issues of pricing control, data
exclusivity etc continue to loom over the domestic pharma
industry. Despite this, the increasing focus on the high-margin
regulated markets coupled with an improvement in the product mix
(moving more towards the high-margin formulations business),
strong cost control measures and the shifting of production to
tax-free zones is likely to be reflected in the improving
operating margins of the Indian pharmaceutical companies. Further,
the mergers and acquisitions (M&A) focus of the Indian players
should maintain the growth momentum for the domestic pharma
industry going forward.
Pharmaceutical
companies under our coverage are expected to report an overall
revenue growth of 21.3% year on year (yoy) with a sharp jump of
63.5% in the net
profit.
