Pharma: Product-wise Export data trends for Q2FY24

18 Oct 2023 , 11:10 AM

In this report, Analysts of IIFL Capital Services analyse the product-wise export data trends for Pharma companies for Q2FY24. While the export data remains sluggish for several companies, Analysts of IIFL Capital Services note: 1) Divi’s Q2 exports increased 6% QoQ (2% below IIFLe), with the key driver of sequential growth being Iopromide (CM product) and Simvastatin, 2) Gland’s Q2 exports declined 11% YoY (in line with IIFLe), with Enoxaparin + Heparin shipments being down 38% YoY in Q2 but up 25% QoQ, 3) Laurus’ Q2 exports increased 10% QoQ, driven by base business ARV products but traction in most of the non-ARV products was muted during the quarter, and 4) Syngene’s Q2 exports declined 12% QoQ, entirely led by lower supplies for Zoetis’ animal health product. Syngene has already supplied USD53mn worth of Bedinvetmab to Zoetis against its annual contracted value of USD50mn, thereby implying that shipments to Zoetis might further moderate. Analysts of IIFL Capital Services maintain their REDUCE ratings on Divi’s and Gland. Although Aurobindo and Zydus are their preferred picks from the US-focused generic companies, their absolute top-picks in the sector include Sun Pharma, Mankind, JB Pharma and Alkem. 

Divi’s Q2 exports increased 6% QoQ (2% below IIFLe), with key driver of QoQ growth being Iopromide and Simvastatin: 

Divi’s export shipments increased 6% QoQ (23% YoY exMolnupiravir), below analysts’ of IIFL Capital Services current estimate of 8% QoQ revenue growth for Divi’s in Q2. While Divi’s Sacubitril/Sitagliptin shipments declined QoQ from USD19/9mn to USD15/2mn respectively in Q2, the sequential growth in exports during the quarter was driven by products such as Iopromide (Contrast Media product), Simvastatin, Naproxen, Levetiracetam, Losartan, etc. Contrast Media (CM) is expected to be a key growth driver for Divi’s over the next few years and Iopromide shipments increased QoQ from USD2mn to USD13mn in Q2. However, with Divi’s overall export shipments in Q2 being lower than Analysts of IIFL Capital Services forecasts, they continue to see a downside risk to Divi’s consensus estimates, given their FY24-26 EPS estimates for Divi’s are 8-13% below consensus. Maintain REDUCE rating. 

Gland’s Q2 exports (ex-Cenexi) declined 11% YoY, in line with IIFLe: 

In Q2, Gland’s export shipments declined 11% YoY, in line with Analysts of IIFL Capital Services current estimate of 11% YoY revenue decline for Gland (ex-Cenexi). While Gland’s Enoxaparin + Heparin shipments are down 38% YoY in Q2, driving the overall decline in Gland’s exports for the quarter, Analysts of IIFL Capital Services note that Enoxaparin + Heparin shipments have increased 25% QoQ from USD17mn in Q1 to USD22mn in Q2. A few other products for which Gland has seen QoQ recovery include Ketorolac, Vancomycin, Tigecycline, Micafungin, etc. With Gland’s stock already trading at 24x FY25ii PER, Analysts of IIFL Capital Services find the risk-reward to be unfavourable and maintain Analysts of IIFL Capital Services REDUCE rating given lower contribution of profit share in the coming quarters (11% in Q1FY24 vs 8% in FY22/23) could also drive volatility in Gland’s base business margins. 

Laurus’ Q2 exports increased 10% QoQ (and 10% YoY ex-Paxlovid), driven by base business ARV products such as Dolutegravir/Lamivudine/Tenofovir combinations. Laurus’ traction in most of the non-ARV products (Valsartan, Sitagliptin, Pantoprazole etc.) were muted during the quarter. Laurus’ Paxlovid shipments were nil in Q2FY24 vs USD70mn in Q2FY23, thereby driving an overall 46% YoY decline in Laurus’ exports for Q2FY24. 

Syngene – Zoetis base is catching up now, with overall Q2 exports being down 12% QoQ: 

Syngene’s Q2 export shipments declined 12% QoQ from USD34mn in Q1 to USD30mn in Q2, as Syngene’s animal health product (Bedinvetmab) shipments to Zoetis moderated QoQ from USD22mn to USD18mn in Q2. Analysts of IIFL Capital Services note that Syngene has already supplied USD53mn worth of Bedinvetmab to Zoetis from Feb’23 to Sep’23 against its annual contracted value of USD50mn, thereby implying that shipments to Zoetis might further moderate over the coming months. In Analysts of IIFL Capital Services estimates for Biocon, Analysts of IIFL Capital Services have assumed 15% cc revenue growth for Syngene in FY24. 

Ipca’s Q2 exports are flat YoY, significantly below Analysts of IIFL Capital Services estimate of 8% YoY growth in Q2:

Ipca’s export shipments in Q2 were flat YoY, significantly below Analysts of IIFL Capital Services current estimate of 8% YoY export revenue growth for Ipca in Q2. Muted YoY performance for Ipca was driven by decline in products such as Losartan, Artesunate, Furosemide etc. which was offset by growth in products such as Artemether, Paracetamol, Metformin, HCQS, etc. With Ipca’s overall export shipments in Q2 being materially lower than Analysts of IIFL Capital Services forecasts, Analysts of IIFL Capital Services continue to see a downside risk to Ipca’s consensus estimates given their FY24-26 EPS estimates are 8-14% below consensus. Maintain REDUCE rating. Ipca’s business mix has become inferior now as the Unichem acquisition increases Ipca’s exposure to inherently low-margin, low-returns US/Exports business and hence, Ipca’s reported RoE will remain depressed at 10-12% over the next two years. 

JB Pharma’s exports steady at 9% YoY growth in Q2 — in line with IIFLe: 

JB Pharma’s export shipments in Q2 increased 9% YoY, largely in line with Analysts of IIFL Capital Services current estimate of 10% YoY export revenue growth for JB in Q2. Although the high-margin CMO business continues to account for 27-28% of JB’s overall export shipments, its CMO shipments declined 13% QoQ in Q2 from USD12.3mn to USD10.7mn. Analysts of IIFL Capital Services maintain their BUY rating on JB Pharma, as Analysts of IIFL Capital Services expect the company to sustain its growth momentum with mid-teens growth in India and CMO business over FY23-26ii, which should enable the company to expand Ebitda margins (ex-ESOP) to 27-28% and drive 19% operating Ebitda Cagr over FY23-26. 

Revlimid US Exports – Aurobindo has shipped significant quantities (15-16% of the overall market volumes) in Q2FY24: 

While none of the other Indian Pharma players (except Dr. Reddy’s) shipped Revlimid to the US in Q2FY24, Aurobindo commenced its Revlimid US shipments in end-Aug’23. In one quarter alone (Q2), Aurobindo has shipped 2mn Revlimid capsules to the US (vs pre-generic market volumes of 12-12.5mn), vs Natco and Dr. Reddy’s cumulative shipped volumes of 2.8mn and 1.1mn capsules respectively, over the past five to six quarters. 

Assuming 20% price erosion vs pre-expiry pricing, Analysts of IIFL Capital Services believe Aurobindo’s volumes will translate into sales of USD1bn (obviously this will be recognised over the next several quarters/years beginning from Q3FY24, as Aurobindo liquidates inventory in the market). Based on cumulative volumes shipped till date and cumulative sales booked till Q1FY24, Analysts of IIFL Capital Services estimate that Dr. Reddy’s has USD180mn Revlimid sales left to be booked; while Sun/Zydus have USD85-90mn Revlimid sales left to be booked (till these companies ship additional volumes). 

Suven has seen a significant 40-45% QoQ and YoY decline in its export shipments for Q2, likely owing to transition issues under the new mgmt team (Advent has acquired 50% stake in Suven). Alembic / Granules / Poly Medicure’s Q2 export shipments increased 9% / 7% / 17% YoY respectively, while Alkem’s Q2 export shipments declined 9% YoY.