- We are positive on the pharmaceutical sector and expect most companies to report a good earnings growth in the July-September quarter, driven by the strong domestic growth and steady contributions from exports.
- The domestic market has witnessed a strong growth in the quarter on the back of aggressive new product launches and the continued focus of the companies in the high growth chronic lifestyle segments. The growth has been largely volume driven, indicating the strong demand for pharmaceutical drugs across the nation. The companies with a wider domestic presence like Cipla, Sun Pharma and Cadila Healthcare are likely to be benefited from the development.
- The show on the export front is also expected to be encouraging driven by new launches of generics or supplying of abbreviated pharmaceutical ingredients (APIs) to the global generic players. For example, Ranbaxy is expected to derive strong sales from the launch of generic Zocor under the 180-day exclusivity period, while Dr Reddy's Lab may witness revenue upside from the sale of Zocor and Proscar under authorised generic terms with Merck Inc. Similarly, Cipla is likely to strengthen its exports by supplying APIs of Zoloft and Proscar to TEVA. Further, with a greater number of companies spreading their wings globally, Indian companies are likely to witness strong earnings in Q2FY2007.
- Pricing pressures in the key markets of the USA and Europe are expected to continue, as more and more players are entering the generic industry. However, we expect the Indian generic companies to remain competitive by vertically integrating themselves in most products and increasing their global presence.
- On the domestic front, the contentious issues of pricing control, data exclusivity etc continue to loom over the domestic pharma industry. Despite this, the increasing focus on the high-margin regulated markets coupled with an improvement in the product mix (moving more towards the high-margin formulations business), strong cost control measures and the shifting of production to tax-free zones is likely to be reflected in the improving operating margins of the Indian pharmaceutical companies. Further, the mergers and acquisitions (M&A) focus of the Indian players should maintain the growth momentum for the domestic pharma industry going forward.
- Pharmaceutical companies under our coverage are expected to report an overall revenue growth of 21.3% year on year (yoy) with a sharp jump of 63.5% in the net profit.
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