Lower input costs may aid pharma firms' Q2 margins

Analysts are expecting pharmaceutical companies to post sales growth of 10-11 per cent in the second quarter this financial year while the Ebitda (earnings before interest, tax, depreciation, and amortisation) margins are anticipated to improve by about 110 basis points.

Ebitda improvement will be led by lower input costs because prices of active pharmaceutical ingredients (APIs) are 5-15 per cent lower year-on-year (Y-o-Y).

Axis Capital said sales growth would be around 10 per cent, of which growth in the India market would be 11 per cent or so.

And the United States (US) market would see a 4 per cent decline quarter-on-quarter (Q-o-Q) on lower generic Revlimid (cancer drug) and steady low mid-single digit price erosion.

Sun Pharmaceutical Industries has seen traction in specialty, brokerages said, while Alkem and Lupin had recent launches in the US market.

Nuvama Institutional Equities said the pharma universe would report 11 per cent revenue growth, a 17 per cent Ebitda increase, and a 19 per cent expansion in profit after tax (PAT).

The Ebitda margin is expected to go up 131 basis points Y-o-Y.

The domestic business is expected to grow 12 per cent due to strong seasonality and healthy growth in mass therapies.

The US is expected to grow 10 per cent Y-o-Y with stable price erosion and strong growth at Zydus and Lupin, Nuvama said.

“We expect strong performance by Sun Pharma, Lupin, Zydus and Divis among large caps and by IPCA, Natco and Ajanta Pharma among mid-caps,” Nuvama analysts said.

The IQVIA data shows cardiac, anti-infective, gastro-intestinal and anti-diabetic therapies growing 10-12 per cent Y-o-Y in Q2FY25.

Ipca, Sun Pharma, Torrent Pharma, and Zydus are expected to have a strong domestic quarter.

“We expect Ipca’s domestic revenue to grow 14 per cent Y-o-Y and 12-13 per cent for Sun, Torrent, Zydus, Alkem and Ajanta (domestic revenue).

"We expect Dr Reddy’s Laboratories domestic revenue to grow 19 per cent Y-o-Y given the onset of the vaccine distribution since last quarter.

"Cipla is expected to see around 7 per cent Y-o-Y growth in India,” Nuvama said.

On the other hand, Natco and Zydus are expected to ring up good US performance.

Zydus will have the benefit of full-quarter sales generic Myrbetriq (medicine for overactive bladder).

“We are building in 12 per cent and 11 per cent Y-o-Y growth in Sun Pharma and Aurobindo’s US revenue.

"Cipla and Lupin are expected to benefit from generic Myrbetriq,” Nuvama said.

Axis Capital noted hospitals were expected to see mid-teen Y-o-Y sales growth supported by higher average revenue per occupied bed (ARPOB) and occupancies (seasonality), and acquisitions at Max. However, analysts said international footfalls might be lower due to political unrest in Bangladesh.

“The consolidated margin is up 60 basis points Y-o-Y (lower Apollo 24x7 costs and seasonality).

"Diagnostics to see low-teen sales growth (Metropolis up 13 percent Y-o-Y in line with its Q2 business update; Dr Lal Pathlabs up 11 per cent in line with double-digit growth reported over past four quarters) in a seasonally strong Q2 driven by continuous traction for wellness packages (Truhealth/Swasthfit) and stable competitive intensity with the Ebitda margin largely steady at 28 per cent,” Axis Capital said.

BNP Paribas analysts expect a strong quarter for health care services companies owing to flu infections.

“We expect aggregate revenue growth of 13.6 per cent Y-o-Y, with 14 per cent (and) 8 per cent revenue growth from hospitals and diagnostics, while the Ebitda margin is expected to rise by 140 basis points Y-o-Y at aggregate level,” said BNP Paribas.

It expects Apollo Healthcare and Fortis Healthcare’s hospital segment revenues to grow 14-16 per cent.

“We assume Fortis Healthcare’s occupancy levels to improve to 70 per cent (from 69 per cent in Q2FY24) while APHS should remain flat Y-o-Y at 68 per cent,” BNP said.

For diagnostics companies, Fortis’s Agilus is likely to see single-digit revenue growth owing to weak brand recognition among patients and doctors after its re-branding from SRL, analysts said.

“We project an Ebitda margin to be below 20 per cent for Agilus due to marketing spend,” BNP said.

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