Though the pick-up in end-market demand from mid-May is positive, firms with a higher proportion of US sales may still see growth challenges in Q1FY21. Sun Pharma and Glenmark may witness an adverse impact, given the sharp drop in patients visiting physicians, say analysts at Nirmal Bang. Only a handful may do well, helped by a favourable currency movement, low base, and high growth in some segments, such as Covid-19 drugs and biologics.
Overall, the Indian pharma industry may witness a weak Q1, with 2.4 per cent earnings contraction year-on-year (YoY), say analysts at Phillip Capital. Those at Nirmal Bang see a sharper fall in earnings — 26 per cent sequentially and 36 per cent YoY — for companies.
Among those which may outperform are Ipca Laboratories and Aurobindo Pharma. Led by strong hydroxychloroquine (HCQ) sales, which was earlier recommended for Covid-19 treatment, will translate into higher domestic and export revenues. The same, coupled with a larger pain relief portfolio, is estimated to help Ipca post 18 per cent revenue growth and a 59 per cent jump in profits YoY. New injectable launches, currency benefits, and continued growth in the base business are seen driving Aurobindo’s revenues. Its earnings may grow up to 13 per cent YoY, estimate analysts (sequentially, it may still be lower).
For Cadila Healthcare, the other key player in the HCQ segment, higher exports, coupled with the rupee’s depreciation, will cushion weakness in the domestic market and may lead to sales growth of 2 per cent YoY and margin improvement of 40 basis points. Cipla will also benefit from the launch of Albuterol inhaler. However, the high base of a thyroid treatment drug, which is witnessing increased competition, may impact its margins and profits.
For Sun Pharma, muted domestic growth during the June quarter and a higher base in the US will put pressure on growth rates. One-off supply opportunities in the US in the year-ago quarter had boosted both sales and margins. Thus, the frim may see weak earnings in Q1.
Though Q1 may be soft with muted sales, the June recovery still holds promise. The domestic pharma market rebounded with 2.4 per cent YoY growth in June after declining in April and May. Prescription-based sales in the US also improved, but are still short of pre-Covid levels. Praful Bohra of Emkay Research says more than earnings, investors will watch out for management commentaries.