Pharma firms’ Q2 earnings likely to be subdued on US pricing woes
Mumbai: Earnings of pharmaceutical companies are likely to remain subdued in the September quarter due to persisting pricing pressure in the US, a key market, even as domestic business may show improvement on restocking after the goods and services tax (GST) came into effect on 1 July.
However, on a sequential basis, financial performance of pharma firms is expected to be better, said analysts.
The September quarter is likely to be weak with US sales impacted by the full-quarter impact consolidation among distributors, but a sequential improvement will be driven by recovery in India business post GST, brokerage Credit Suisse said in a pre-earnings note.
“We believe pricing pressure in the US is unlikely to ease in the near term. For every opportunity now, there are more approvals than ever before. Rising competition and channel consolidation should continue to have an adverse impact on prices. We do think that the intensity of erosion has been much higher over the past two years, and market expectations around pricing are far from sanguine,” broking firm Nomura said in a report.
On the domestic front, distributors and retailers started building up inventories after de-stocking in June ahead of GST, which is expected to help revive growth compared with the June quarter.
As per data from AIOCD-AWACS, the market research unit of All India Organization of Chemists and Druggists, overall Indian pharma market grew 1% on-year to Rs30,067 crore in the quarter ended September.
Sun Pharmaceutical Industries Ltd, Lupin Ltd and Glenmark Pharmaceuticals Ltd are seen posting significant decline in Ebitda (earnings before interest, tax, depreciation and amortisation) and net profit on a high base of last year, lack of meaningful product launches and price erosion in the US.
Aurobindo Pharma Ltd and Cadila Healthcare Ltd are seen bucking the trend and reporting strong set of numbers on the back key product launches in the US—the generic of Renvela and the generic of Lialda, respectively.
Dr. Reddy’s Laboratories Ltd and Cipla Ltd could see an improvement in revenue and margins, but the growth is unlikely to be sharp.
Market participants will continue to watch out for management comments on US pricing scenario, probable timelines for launch of complex generics and specialty products, resolution of certain quality-compliance issues and growth outlook for domestic market amid increasing government interventions.
“The sector is grappling with structural business challenges. FY18 is likely to be a disappointing year with rupee’s appreciation being an additional headwind along with business woes in US and India. Street’s downgrades continued with 19% and 12% cut in FY18 and FY19 earnings estimates during Q2FY18,” Edelweiss Securities said in its report.