Result Preview - Pharma - New product launches and rupee weakness to be positive for cos

We expect several companies to put strong performance in the Q1FY19E. Rupee depreciation is expected to be a tailwind for the sector.

Jul 22, 2018 07:07 IST India Infoline News Service

The pharma pack has been under pressure for several quarters in row due to 1) pricing pressure in US, 2) slow momentum in the product launches, 3) base destruction due to GST led de-stocking and 4) unfavourable currency movement. The three out of the four factors mentioned above have turned positive for the pharma companies in Q1FY19E and hence after long time, Indian pharma companies can be expected to report strong growth in Q1FY19E.
 
To start with, the revenue base in Q1FY18 had impacted due to Inventory destocking in the run-up to the GST roll-out. The companies have now adjusted to the new normal of GST and stocking levels have also come to normalcy. We expect strong growth in the domestic revenue due to the lower India base in Q1FY18. The companies in Q1FY18 were also impacted due to the negative operating leverage and hence Q1FY19E margins and PAT, in absence of any one-offs, would grow.
 
The average rupee depreciation in the Q1FY19 has been 4.8% yoy. This is the first quarter after Q3FY17 in which rupee has depreciated on year on year basis. This, we believe would play a tailwind for the pharma companies due to their export oriented business model.
 
The dried up product approvals in the past few years, together with the pricing erosion and channel consolidation, had impacted the Indian pharma companies but recently we have seen traction in the product approvals which we highlight below:
 
1) Aurobindo Pharma (gReyataz, Ertapenem, gPrilosec),
2) Biocon (Trastuzumab, Pegfilgrastim),
3) Cipla (Testosterone Cypionate injection, gSustiva),
4) Cadila Healthcare (gExjade, gZegerid, gSensipar, gVibramycin, gAdalat, gQuestran, etc.),
5) Dr. Reddy’s Lab (gSuboxone, gAloxi),
6) Glenmark (gWelchol, Clobetasol Propionate, gProtopic),
7) Jubilant Life (Niacin),
8) Lupin (gTobi, gMycolog, Methylergonovine Maleate, gXenazine, gTamiflu, etc.),
9) Natco (gCopaxone),
10) Strides Shasun (gTamiflu, Ibuprofen, gNizoral, gSensipar, Malaria suppository in Africa),
11) Sun Pharma (gWelchol, gNexium, Methadone HCL),
12) Torrent Pharma (Fenofibrate, gViagra)

Additionally, recent speciality launches by Lupin (Solosec), Cadila Healthcare (Zypitamagtm) and Sun Pharma (Yonsa, Seciera and Ilumya) are also positive signs for the respective companies and we will watch for their commentary on the market share gains and pricing in the quarterly results.

Despite these positives, the pricing pressure in the US remains key factor which will impact the revenues of Indian companies. However, with the consolidation phase in the US healthcare most likely over and companies guiding of single digit pricing pressure in next 12-18 months, we believe that overall revenue growth in US may surprise positively for some companies in Q1FY19E.

Top Picks – Aurobindo Pharma, Biocon, Jubilant Life, Natco Pharma, Torrent Pharma, Syngene International
Abbott India Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 833 18.0% 5.69%
EBITDA (Rs Cr) 117 89.2% 9.41%
EBITDA Margin (%) 14.0% 527 48
PAT (Rs Cr) 87.5 81.4% -12.53%
EPS (Rs) 41.19 81.4% -12.53%

Abbott India’s Sales are expected to grow 18% yoy on low base in Q1FY18 as well as due to higher sales from its branded products. EBITDA margins and PAT are likely to remain strong due to the favourable product mix. We expect lower other income to impact its sequential (qoq) PAT growth.

Alkem Lab Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 1,538 18.7% 1.61%
EBITDA (Rs Cr) 315 234.0% 177.09%
EBITDA Margin (%) 20.5% 1,321 1,298
PAT (Rs Cr) 243 281.7% 267.04%
EPS (Rs) 20.36 281.7% 267.04%

We expect Alkem’s sales to grow 18.7% yoy on the back of lower domestic base in Q1FY18. Alkem in Q4FY19 saws strong growth in the US revenue and same is to grow 20% yoy in Q1FY19E. EBITDA and PAT are expected to see grow by 234% and 282% yoy, respectively due to higher MR productivity in chronic, lower material cost and better operating leverage in the quarter. Commentary on Form 483 on Daman would be keenly observed as probability of getting a warning letter cannot be ruled out.

Apollo Hospitals Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 1,966 16.7% 5.55%
EBITDA (Rs Cr) 225 29.3% 5.14%
EBITDA Margin (%) 11.4% 111 -4
PAT (Rs Cr) 67 91.6% 13.14%
EPS (Rs) 4.8 91.6% 13.14%

Apollo Hospitals’ revenue is expected to grow 16.7% yoy on the back of addition of new pharmacies and strong revenue growth in new hospitals. EBITDA and PAT is expected to grow 29.3% and 91.6% yoy respectively due to improving operating performances of new hospitals and lower Q1FY18 base.

Aurobindo Pharma Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 4,121 12.0% 1.78%
EBITDA (Rs Cr) 879 4.4% 9.33%
EBITDA Margin (%) 21.3% -155 147
PAT (Rs Cr) 560 6.7% 3.44%
EPS (Rs) 9.56 6.7% 3.44%

We expect Aurobindo’s sales to grow 12% yoy on the back of low base, weak currency and the launches of ertapenem, gPrilosec, Ibuprofen (suspension) and gReyataz. EBITDA margins are likely to decline yoy due to high employee costs. EBITDA and PAT in Q1FY19E are expected to grow 4.4% and 6.7% yoy respectively. We will observe management commentary on Ertapenem and potential acquisition plan of Mallinckrodt.

Biocon Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 1,152 23.4% -1.48%
EBITDA (Rs Cr) 215 12.1% -7.60%
EBITDA Margin (%) 18.7% -189 -124
PAT (Rs Cr) 99 21.8% -24.08%
EPS (Rs) 1.7 21.8% -24.08%

We expect Biocon to report revenue /PAT growth 23.4% and 21.8% yoy growth in Q1FY19E. Revenue growth is expected to be driven by rupee depreciation, new client additions in research business (Syngene) and traction in biologics business. PAT is set to grow due to operating leverage, better product mix and biologics performance. Management’s commentary on Trastuzumab and Pegfilgrastim monetization would be keenly watched.

Cadila Healthcare Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 2,995 34.4% -7.84%
EBITDA (Rs Cr) 687 146.3% -21.04%
EBITDA Margin (%) 22.9% 1,043 -383
PAT (Rs Cr) 423 226.1% -30.24%
EPS (Rs) 4.1 226.1% -30.24%

Cadila’s revenue, EBITDA and PAT are expected to grow 34.4%, 146.3% and 226.1% yoy, respectively due to better product mix, higher contribution of India business and recent product launches. Sequential performance (qoq) however is likely to remain weak due to competition in gLialda and gTamiflu.

Cipla Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 4,047 14.8% 9.43%
EBITDA (Rs Cr) 775 19.8% 39.09%
EBITDA Margin (%) 19.1% 80 408
PAT (Rs Cr) 363 13.1% 103.24%
EPS (Rs) 4.51 13.1% 103.24%

Cipla’s sales are expected to grow on the back of its low Q1FY18 base, weak currency and launches of gIsuprel, gSustiva, etc. EBITDA and PAT is likely to grow 19.8% and 13.1% yoy, respectively due to the positive operating leverage.

Divi's Lab Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 997 21.4% -8.36%
EBITDA (Rs Cr) 357 45.8% -7.63%
EBITDA Margin (%) 35.8% 600 28
PAT (Rs Cr) 253 43.7% -3.33%
EPS (Rs) 9.53 43.7% -3.33%

Divi’s Laboratories’ revenue and PAT is expected to grow 21.4% and 43.7% yoy respectively on the back of clearance of Vizag Unit 2 and lower base in Q1FY18 due to import alert. EBITDA margins should improve due to the decline in the plant remediation related expenses, weak currency and better product mix.

Dr. Reddy's Lab Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 3,289 -1.3% -7.46%
EBITDA (Rs Cr) 633 95.7% 12.24%
EBITDA Margin (%) 19.2% 954 338
PAT (Rs Cr) 303 354.2% 11.17%
EPS (Rs) 18.2 354.2% 11.17%

Dr. Reddy’s US revenue is likely to remain weak in the absence of major product launches, continued pricing pressure in US and competition in gRenvela. The US revenue would have received boost from gSuboxone launch but a court order has blocked the rollout of the drug. India revenue is likely to show pick-up on low Q1FY18 base. EBITDA and PAT likely to grow 95.7% and 354% yoy respectively due to strong domestic performance and favourable Q1FY18 base. 
 
Glaxosmithkline Pharmaceuticals Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 656 8.0% -12.42%
EBITDA (Rs Cr) 138 598.9% -11.09%
EBITDA Margin (%) 21.0% 1,775 31
PAT (Rs Cr) 95 588.9% -10.22%
EPS (Rs) 11.2 588.9% -10.22%

GSK Pharma’s revenue growth is expected to be 8% yoy on the back of favourable base in Q1FY18. EBITDA and PAT are expected to grow multi-fold due to positive operating leverage.

Glenmark Pharma Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 2,299 -2.7% 0.84%
EBITDA (Rs Cr) 397 -31.2% 21.52%
EBITDA Margin (%) 17.3% -716 294
PAT (Rs Cr) 180 -46.1% 18.49%
EPS (Rs) 6.37 -46.1% 18.49%

Glenmark’s sales in Q1FY19E are expected to decline 2.7% yoy due to the high base in Q1FY18 owing to gZetia exclusivity, sequentially however we expect revenue to remain flat due to recent launches of gWelchol, Clobetasol Propionate, gProtopic, etc. EBITDA margins are expected to contract 716bps yoy while PAT is expected to decline 46% yoy.

Jubilant Life Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 2,192 37.3% -2.66%
EBITDA (Rs Cr) 438 29.9% -4.25%
EBITDA Margin (%) 20.0% -115 -33
PAT (Rs Cr) 209 45.7% 37.40%
EPS (Rs) 13.15 45.7% 37.40%

Jubilant’s US sales are expected to show strong growth due to continued growth momentum in its radio-pharma business, consolidation of Triad and growth in its chemical business on favourable dynamics. EBITDA margins are expected to contract 115bps yoy to 20% due to the pressure on the generics business. PAT in Q4FY18 was impacted due to Rs91cr charge on account of ANDA rationalisation. We expect PAT to grow on 45.7% yoy.

Lupin Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 4,062 5.0% 0.70%
EBITDA (Rs Cr) 820 6.7% 15.70%
EBITDA Margin (%) 20.2% 33 262
PAT (Rs Cr) 410 14.5% -40.19%
EPS (Rs) 9.1 14.5% -40.19%

Lupin’s US revenue is likely to remain stable as pricing pressure is expected to be offset by Solosec launch as well monetisation of some ANDAs. India revenue is expected to show strong revenue growth due to lower Q1FY18 base. EBITDA and PAT likely to grow on account of $15mn upfront licensing income from Mylan on Enbrel biosimilar partnership.

Natco Pharma Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 647 51.1% -15.73%
EBITDA (Rs Cr) 373 172.49% -2.82%
EBITDA Margin (%) 57.6% 2,564 765
PAT (Rs Cr) 270 188.0% -9.94%
EPS (Rs) 14.63 188.0% -9.94%

Natco Pharma’s revenue and PAT is expected to grow 51% and 188% yoy respectively due to gTamiflu sales and rise in the market share of gCopaxone. Company has also launched few niche products in India market which will be positive for its domestic business. EBITDA margins are expected to remain strong due to the higher contribution of gTamiflu and gCopaxone. We will obsever management commentary on gCopaxone as Mylan has taken heavy price cuts on the product.

Pfizer Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 523 20.9% 0.59%
EBITDA (Rs Cr) 141 83.9% 1.83%
EBITDA Margin (%) 27.0% 924 33
PAT (Rs Cr) 105.0 83.7% 0.47%
EPS (Rs) 22.95 83.7% 0.47%

Pfizer’s sales in Q1FY19E are expected to show a strong growth on low Q1FY18 base and introduction of new products. EBITDA margins are expected to show strong improvement due to positive operating leverage, brand equity, etc. PAT is likely to grow 83.7% yoy on low base.

Sanofi India Q2CY18 yoy (%) qoq (%)
Revenue (Rs Cr) 661 10.0% 6.95%
EBITDA (Rs Cr) 145 25.95% 8.14%
EBITDA Margin (%) 22.0% 279 24
PAT (Rs Cr) 93 26.7% 13.17%
EPS (Rs) 40.54 26.7% 13.17%

Sanofi India’s sales and PAT is expected to grow 10% and 26.7% yoy respectively due to favourable Q1FY18 base, new anti-diabetes product launches and growth in current products. EBITDA margins are likely to show slight improvement due to lower operating costs.

Sun Pharma Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 6,901 11.2% -1.09%
EBITDA (Rs Cr) 1,517 38.4% -9.90%
EBITDA Margin (%) 22.0% 433 -215
PAT (Rs Cr) 888 41.0% -42.78%
EPS (Rs) 3.7 41.0% -42.78%

Sun Pharma’s US revenue is likely to stabilize with speciality product launches (mentioned above) and single digit price erosion in its subsidiary Taro. The India revenue growth is expected in double digits due to lower Q1FY18 base. EBITDA and PAT are likely to grow 38.4% and 41% respectively due to strong domestic performance, product launches in the US and lower price erosion. We will watch for the management commentary on its ANDA pipeline in Halol as well as market share ramp-up in the speciality products.

Syngene International Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 417 43.3% 1.96%
EBITDA (Rs Cr) 137 42.71% 6.37%
EBITDA Margin (%) 32.9% -14 136
PAT (Rs Cr) 89 43.4% 5.46%
EPS (Rs) 4.4 43.4% 5.46%

Syngene’s sales and PAT is expected to grow 43.3% and 43.4%, respectively in Q1FY19E due to the addition of new clients over the past 12 months, rupee depreciation and commissioning of new facilities. EBITDA margins are expected to show slight decline on yoy basis due to higher operating expenses.

Torrent Pharma Q1FY19E yoy (%) qoq (%)
Revenue (Rs Cr) 1,693 23.2% -1.66%
EBITDA (Rs Cr) 381 28.4% 4.80%
EBITDA Margin (%) 22.5% 91 139
PAT (Rs Cr) 143 -23.7% -37.08%
EPS (Rs) 8.48 -23.7% -37.08%

Torrent’s revenue is expected to grow 23.2% on the back of new product launches in the US and integration of Unichem laboratories. Revenue in Brazil is likely to impact due to nationwide strike by the truckers. EBITDA is expected to grow 28.4% yoy due to Unichem integration. PAT however is likely to see 23.7% yoy decline due to higher interest and tax expenses.

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