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Here’s why pharma sector will continue outperforming

The News International Team

The pharma sector is expected to continue the outperformance going ahead. According to a Motilal Oswal report, Indian pharma companies may witness a sales growth of 14 percent year-on-year and EBITDA growth of around 19 percent Y-o-Y for Q2 or the July-September quarter of FY15. The financial services firm also expects the adjusted profit after tax to grow around 14 percent Y-o-Y.

This will be mostly driven by:

1) Higher depreciation charge for most companies.
2) High base effect and slower new launches in the US to impact  Sun Pharma and Dr Reddy’s .
3) Stronger traction and improved sales in the US to drive revenue growth for Lupin , Cadila Healthcare ,  Torrent Pharma and Alembic Pharma .
4) Taro Pharma is expected to witness a stronger quarter due to price increases taken in the last quarter.

Analysts at Motilal Oswal further believe that Lupin, Ranbaxy , Cadila Healthcare, GSK Pharma , Torrent Pharma and Alembic Pharma will report stronger overall operational performance during this quarter, while Ipca Labs and  Sanofi India will be affected by recent regulatory issues, thus witnessing a muted quarter. Ranbaxy is expected to witness a strong quarter on the back of launch of generic Diovan in the US.

“At the macro level, we expect operating performance for rest of our universe to benefit from a stronger performance in the domestic market and increasing traction in the US. Flat Q-o-Q movement in INR against USD may lead to insignificant MTM impact from monetary forex liabilities,” the report elaborated.

The expiry of drug patents in the US is also great news for not only consumers but also the domestic pharmaceutical industry, where generics account for about 75 percent of total sales, according to a report by CARE Ratings.

The Indian pharmaceutical companies have an opportunity to capitalise on the patent cliff and gain a greater share of the growing generics market. At present, India accounts for nearly 40 percent of generic drugs, over-the-counter products and 10 percent of finished dosages used in the US.

Also, the withdrawal of price control guidelines by the National Pharmaceutical Pricing Authority (NPPA) for 108 non-scheduled drugs is expected to be a big positive for the pharma sector.

Speaking to CNBC-TV18, Ranjit Kapadia, senior VP, Centrum Broking said the sector will see relief of around Rs 640 crore with Sanofi India being the biggest benefactor and saving almost Rs 140 crore post the withdrawal order.

However, the sector is marred by regulatory hurdles from the USFDA and pricing issues. The US drug regulator’s recent surprise audit at Sun Pharma’s Halol Plant in Gujarat left the market in a quandary, resulting in a fall in Sun Pharma stock price. 

Also, instances of an unprecedented price rise in select generic drugs has forced the US Congress to undertake an investigation into soaring generic drug prices. Despite this, financial services firm Elara Securities does not expect any adverse impact on pharma companies in the near-term.

“However, the scope of investigation could expand into areas like dermatology, which has witnessed a sharp price rise recently. Given the sharp price revision, we expect some corrective measures from companies. Given the rising cost pressure, we expect companies to take advantage of the favorable pricing scenario as and when it arises,” it added.

Posted By: Anjali Agarwal

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