Q1 results preview: Here's why pharma companies are expected to show improvement

The domestic brokerage Nuvama Institutional Equities anticipates better results from the pharmaceutical companies in Q1FY24. In its analysis, the brokerage predicted that Q1FY24 (April to June) revenue and earnings before interest, taxes, depreciation, and amortisation (EBITDA) growth would be 16%/30% year over year and 4%/7% quarter over quarter, with ex-India leading the way.

In its report, the brokerage identified five significant variables that would affect the company's Q1FY24 results. According to the brokerage, the impact of the national list of essential medicines (NLEM) combined with a delayed monsoon will slow down India's economic growth, especially for acute heavyweights like Alkem Laboratories Ltd.

The brokerage firm anticipates domestic growth of 8% year over year (YoY), with Torrent Pharmaceuticals Ltd. and Cipla Ltd taking the top spots.

Aurobindo Pharma Ltd may benefit from the volume growth and steady price erosion now occurring in the US. Additionally, Dr Reddy's Laboratories Ltd has made successful launches.

Additionally, the brokerage claimed that gRevlimid boosts at Dr. Reddy's Laboratories Ltd, Zydus Lifesciences Ltd, Sun Pharmaceutical Industries Ltd, Cipla Ltd, and Natco Pharma will help to maintain US stability.

"For Sun Pharmaceutical Industries Ltd gRevlimid likely to offset pressure in US generics due to Halol import alert and specialty Rx growth, particularly Ilumya seem to have picked up. Expect double-digit growth in ex-US exports across companies. Easing API costs should aid gross margin, major benefit to reflect in coming quarters," said the brokerage in its report.

Here are the comments made by the brokerage for the large cap stocks it covered in Q1FY24.

Sun Pharmaceutical Industries: The brokerage anticipates that domestic formulations will remain weak (+8% YoY) due to the impact of the NPPA, the patent expiration of two significant goods licenced from Merck, and the seasonal weakness for acute medications.

"We expect overall EBITDA margins at about 24% (-100bps YoY) impacted partly by Halol remediation cost, consolidation of Concert’s cost and cost inflation. US revenue (~USD440mn), +2% QoQ in cc mainly on account uptick in specialty business and gRevlimid (+4% QoQ excluding licensing income in Q4). US Specialty business continue to remain steady," the brokerage said.

Aurobindo Pharma: The brokerage anticipated in its analysis that new product launches and increased market share would boost US sales by 4% QoQ to roughly USD 385 million. Europe's base growth is anticipated to be 5% QoQ lower due to clawback taxes in various European nations. Expect low single digit QoQ growth in the API business. EBITDA margin to 16.2%, +70bps QoQ, and lowering input prices are projected to have a positive impact on gross margin.

Cipla: The brokerage firm expects Cipla to have a stable quarter. India was helped by a robust economy, new products, and price increases. US at USD195mn, consistent with the recommended base. While lanreotide share and price erosion appear to be constant, the share of albuterol appears to be declining.

"With worse already over in SAGA, expect its revenues to improve 7% YoY/2% QoQ. Expect gross margin to remain stable at 64% as benefit of price increase, input and freight cost normalisation starts flowing. EBITDA margin at ~22% aided by strong branded contribution and well within guided range," said the brokerage in its report.

Dr. Reddy's Labs: "North America revenue at about USD370mn, +24% QoQ assuming higher gRevlimid sales (USD 100mn v. USD65mn), Mayne Pharma acquisition and share gain in gSuboxone partly offset by price erosion and share loss in gCiprodex.

India to decline 13% YoY optically, however, adjusted for one-off income from sale of brands and lost sales from divested brands, India to grow at 9% YoY. Adjusted EBITDA margin at 26%, +480bps QoQ due to higher expected gRevlimid sales and thus higher contribution to profit," the brokerage said.

Zydus Lifesciences: The brokerage firm expects US revenue to grow by 2% QoQ on a strong base, mostly as a result of an increase in Trokendi XR and high gRevlimid sales. Mesalamine performance is presently stable, with market shares for Lialda (44%) and gApriso (19%) remaining largely steady. Asacol HD volumes, however, are still declining in the high single digits.

“In domestic formulations, company is expected to grow 9% YoY and wellness business to see seasonal tailwinds. We estimate strong EBITDA margins of ~25-26% +500bps YoY due to high value products despite impacted by slightly higher R&D,” the brokerage said.

Lupin: According to the brokerage's estimate, sales are anticipated to increase by 17% YoY, excluding milestone income of USD25mn. Expect US to stay constant at around USD178 million as an increase in volumes and a boost in Suprep's market share counteract price erosion.

The company has kept its albuterol market share steady. As the economy gradually improves and new sales forces begin to contribute, domestic revenues are predicted to expand at an 8% YoY rate. EBITDA margin is predicted to stay at 12–13% (flat QoQ).

Torrent Pharma: “We model India formulations growth at 16% YoY with core business expected to grow at 10%. US revenues flat QoQ at USD34mn while Brazil is expected to clock 14% YoY growth driven by new launches in last year as well as strong market share ramp-up. Gross margins are expected to remain stable at 71.8% while EBITDA margin is expected at 29.3%, -100bps YoY impacted by higher salesforce strength,” said the brokerage. 

Alkem Laboratories: Due to the delayed monsoons, which had an influence on acute prescriptions, the brokerage anticipates a weak Q1. India is anticipated to increase by 7-8% YoY. US sales will generally remain flat QoQ. The brokerage anticipates a modest 11% EBITDA margin due to reduced branded sales being partially compensated by lower input costs.