Pharma Export data (Q3FY24) – Strong for Gland & Syngene; Weak across the board for others

12 Jan 2024 , 12:37 PM

Analysts of IIFL Capital Services analyse the Export data for the Pharma companies for Q3FY24, which suggests that sequential quarterly growth trends were strong for Gland, Syngene, Alkem and Alembic, while the same were weak across the board for other companies (Divi’s, Laurus, Concord etc.). Few key highlights from the Export data include: 1) Divi’s export trends are still below expectations despite increasing contribution from new projects (Iopromide, Sacubitril, Orlistat), thereby raising doubts over consensus expectations of ~800bps margin expansion by FY26; 2) Gland’s US exports led by Enoxaparin and Ketorolac drove the overall growth of 14% QoQ for Gland in Q3; 3) Syngene’s Zoetis supplies will present a tough base for CY24, implying potential growth moderation ahead; 4) Laurus saw no pickup in exports yet, given that the animal health supplies were ‘nil’ for Laurus in Q3; 5) Ipca and Unichem’s export shipments declined 11% and 4% QoQ respectively in Q3. 

Divi’s – Export trends are still below expectations, raising doubts over consensus expectations of ~800bps margin expansion by FY26: 

Divi’s Q3FY24 export shipments increased 4% QoQ vs 6% QoQ growth currently factored in analysts of IIFL Capital Services estimates. On an ex-Molnupiravir basis, Divi’s Q3 export shipments grew 16% YoY vs 20% YoY growth factored in analysts of IIFL Capital Services estimates. The sequential growth for Divi’s in Q3 was driven by the fast-track Contrast Media project Iopromide (up 30% QoQ from USD13m to USD17m), Naproxen (up 12% QoQ from USD21m to USD23m), Sacubitril (up 7% QoQ from USD15m to USD16m), Orlistat (a weight loss product, up 66% QoQ from USD5m to USD8m), and Valacyclovir (up 115% QoQ from USD3m to USD6m). Growth in these products was partly offset by sequential decline in base business products such as Levetiracetam, Valsartan, Dextromethorphan, Astafeed, etc. With Divi’s overall export growth still being below expectations despite the increasing contribution from new projects (Iopromide, Sacubitril, Orlistat), analysts of IIFL Capital Services believe there could be downside risks to consensus expectations of ~800bps margin expansion for Divi’s over H1FY24-FY26. With the stock trading at ~41x FY26ii PE and risk of further earnings downgrades, analysts of IIFL Capital Services maintain their REDUCE rating on Divi’s (TP Rs3,160). 

Gland – US exports led by Enoxaparin and Ketorolac drove the overall growth in Q3: 

Gland’s Q3FY24 export shipments increased 14% QoQ (vs 7% QoQ ex-Cenexi growth currently factored in analysts of IIFL Capital Services estimates) from USD85m to USD97m, with the entire sequential growth for Gland being driven by the US exports (up 26% QoQ from USD57m to USD71m), while the ex-US exports declined marginally (down 10% QoQ from USD28m to USD25m). US exports accounted for 74% of Gland’s export shipments in Q3 vs 66% in H1FY24, which will also benefit Gland’s GMs in Q3 since US business has higher GMs vs the RoW business. The US exports in Q3 were driven by Enoxaparin (up 3.7x QoQ from USD2m to USD8m) and Ketorolac (up 64% QoQ from USD7m to USD11m) which was partly offset by decline in Heparin (down 78% QoQ from USD4m to USD1m). While Gland will likely beat expectations in Q3, analysts of IIFL Capital Services note that the stock is trading at ~26x FY26ii PE; appropriately capturing the 17% EPS Cagr over FY24-26. Analysts of IIFL Capital Services find valuations to be expensive and maintain analysts of IIFL Capital Services REDUCE rating on Gland (TP Rs1,530). 

Syngene – Zoetis supplies will present a tough base for CY24, implying potential growth moderation ahead: 

Syngene’s Q3FY24 export shipments increased 21% QoQ from USD30m to USD36m, with the entire sequential growth coming from Librela (Bedinvetmab) supplies to Zoetis which increased QoQ from USD18m to USD25m in Q3. Against its annual contracted value of USD50m supplies for Librela, Syngene has supplied USD80m to Zoetis in CY23, which likely implies that the supplies to Zoetis will significantly taper-off in CY24 and will present a tough base for Syngene going ahead. Analysts of IIFL Capital Services note that ex-Zoetis export shipments for Syngene have declined 10-11% YoY in H2CY23.

Laurus – No pickup in Exports yet, given animal health supplies were ‘nil’ in Q3: 

Laurus’ Q3FY24 export shipments were flat QoQ and declined 19% YoY on an ex-Paxlovid basis. Laurus’ animal health shipments to Intervet GmbH (a subsidiary of Merck Animal Health) were ‘nil’ in Q3FY24 vs USD4.6m in Q2FY24. While Laurus’ animal health project will start scaling-up in FY25, meaningful revenue accretion is expected only from FY26. 

Ipca – Ipca’s Q3FY24 export shipments declined 11% QoQ vs analysts of IIFL Capital Services forecast of flat QoQ growth currently factored in their estimates. The sequential decline in exports for Ipca was driven by 17-20% QoQ decline in Losartan/Paracetamol and 80% QoQ decline in HCQS. Unichem’s Q3 export shipments declined 4% QoQ and have been flat at USD39-41m over the past three quarters. Analysts of IIFL Capital Services have a REDUCE rating on Ipca (TP Rs980). 

JB Pharma – Rationalisation of low-margin South-Africa (SA) tender business might have driven 12% QoQ decline in JB’s exports shipments for Q3FY24. Although analysts of IIFL Capital Services were building largely flat export sales for JB in Q3 and the overall top line might be 3-4% below their expectations, they don’t expect a material miss on Ebitda considering the SA tender business was a low-margin business for JB. Analysts of IIFL Capital Services maintain their BUY rating on JB (TP Rs1,750).