Pharmaceuticals & Biotech. share price target

Overall mixed quarter; Growth momentum to continue in domestic business The pharmaceutical companies under our coverage is expected to post a 6.9% (YoY) growth in earnings with a 10.1% (YoY) rise in the revenue base due to decent domestic traction. Lack of meaningful approvals increasing competition in the existing product portfolio leads to muted growth in the US market. However, a substantial ramp-up of albuterol for Lupin and Ilumya uptake to offset Absorica decline for Sun pharma would support the momentum in the US for both these players. Domestic formulations are expected to grow at the higher single-digit to midteen due to continued traction in acute therapies and sustained pick up in chronic pieces. Cost pressures in the form of higher freight costs, marketing spends and raw material cost increases are likely to dent margin, which would slow...

Q4 witnessed significant one offs (M&As, write-offs etc.)- Alembic's Aleor acquisition, Aurobindo's Veritaz acquisition, Biocon's Viatris Biosimilars acquisition, Lupin's Anglo French Drugs CNS & VMS acquisition, Taro's Alchemy acquisition and Sun Pharma's plaintiff settlement. Adjusted PAT is...

OUR TOP POSITIVE PLAYS ARE: Cipla, Abbott India, KIMS, HCG

Return of higher operating costs as global economies reopen and rationalisation of growth guidance have undermined pharma valuations

HIV vaccine development boosted by inclusion of the mRNA platform following its track record of rapid Covid-19 jab rollout

Fermenta bio expected to report revenue growth of 4.6% YoY to INR 941mn, despite of continued traction in the Human VD3 business (80% of overall VD3 sales H1FY22) due to planed shutdown for capacity expansion. However, owing to a high base, the EBITDA margin can contract by 887bps to...

Europe (select pack) is expected to grow 5.7% YoY mainly due to a fully normalised quarter for marketing activities partially offset by logistical challenges. API segment (select pack) is expected to grow ~4.2% YoY with healthy order book position. In APIs, it remains to be seen how much revenue the companies recognise in Q3FY22, given the input availability, cost volatility and their ability to pass on the same to customers. On the companies front, four out of 12 companies are likely to report 9%+ YoY growth. Key monitorables are: Divi's, which is likely to register around...

US sales - mixed bag: We expect US market to remain steady on QoQ basis with continued challenging environment, partly offset by seasonality. Sun Pharma's specialty sales to enhance in Q3FY22 on successful launch of WINLEVI product. On favorable flu season, Lupin is expected to grow QoQ. We believe Cadila's US sales to decline QoQ, due to increased competition from Asacol HD partly offset by strong flu season. Indoco US sales to see QoQ pick up aided by profit share from Brinzolamide. ARBP US sales to decline on...

Post volatile CY20 and CY21, we expect CY22 to be predictable and steady with low COVID-19 cases coupled with high vaccination; however, Omicron variant could turn out to be disruptive. We remain positive on the sector as 1) India business is expected to grow in double digit, 2) continuous cost-control measures would likely support margins and 3) US business could report incremental growth led by new complex launches, subdued base and normalising price erosion.

Indian government has announced Production Linked Incentive (PLI) Scheme of Rs150bn to incentivise Pharmaceuticals Industry to enhance India’s manufacturing capabilities. The scheme will provide financial support on incremental sales (over the base year - FY20) of pharma goods, based on pre-defined selection criteria.