India’s top-three drug makers, Ranbaxy Laboratories Ltd, Dr Reddy’s Laboratories Ltd and Cipla Ltd, could see net profits shrink between 5% and 23% in the December quarter over the year-ago period, as the firms grappled with the after-effects of an appreciating rupee and saw just a few product launches with protected markets in the US, according to an analysts poll.
Results in the quarter ended December—the fiscal third period for most firms and the fourth quarter for Ranbaxy— will also be muted for the industry as competition in the domestic market increased, and because the comparable quarter in fiscal 2007 saw the firms report exceptionally strong revenues and profits, mostly driven by one-off business gains.
Put together, these factors could depress revenue growth by 10% to 15%, analysts predict. Dr Reddy’s could see a 23% drop in profits in the quarter gone by to Rs187.9 crore, an average of projections by five analyst firms showed. The firms predicted Ranbaxy would have its profits decrease by an average 11% to Rs185.9 crore and Cipla see profits at Rs184.4 crore 5% lower on an average than the same quarter in 2007.
Ranbaxy, which is expected to report revenues of Rs1,833.7 crore with a 7.8% annual growth in the December quarter, will report fourth-quarter and full-year results on Thursday. The third-quarter results of Dr Reddy’s (expected revenues: Rs1,216.33 crore) is scheduled for 25 January and Cipla (Rs1,041.89 crore) has not announced a date, yet.
While the drug sector could see some gainers in Sun Pharmaceuticals Ltd, Glenmark Pharmaceuticals Ltd and Wockhardt Ltd, it won’t be enough to make up for the fall caused by the big players in an index for pharmaceutical shares on the Bombay Stock Exchange (BSE).
Nimish Desai and Jignesh K. Gandhi, drug analysts with Motilal Oswal Securities Ltd, predict in their report that the big three generic firms are likely to report a 3.5% decline in revenues “mainly due to 22% sales decline for Dr Reddy’s Labs (because of higher base effect)”. Some 14 smaller Indian drug makers, including Aurobindo Pharma Ltd, Biocon Ltd and Lupin Ltd, will grow by 27% on the back of increased product basket in regulated markets, “traction in contract research and manufacturing business and consolidation of acquired companies,” the analysts wrote.
A stronger rupee, which has appreciated some 14% since January last year, continued to dampen drugs exports.
However, factors which acted as revenue spikes last year don’t exist any more. Ranbaxy’s limited period market exclusivity on 80mg dosage version of Merck and Co.’s Zocor drug, which ran between June and December last year, earned revenues of $60 million (Rs238 crore)—a one-time benefit that is absent this year. Revenues at Dr Reddy’s were also buoyed for most of last year by sales of copies of Merck drugs Zocor and Proscar in the US.
The only US market exclusivity in December quarter this year was enjoyed by Glenmark and Sun Pharma on Novartis AG’s $643 million anti-seizure drug Trileptal. Still, pharmaceutical shares could bottom out soon, said most sector experts, pointing to drugs with $20 billion revenues going off patent in 2008 and presenting Indian generic players a new opportunity.
BSE health-care index gained 16.5% in 2007, but under-performed by more than 30% when compared to the bourse benchmark index, Sensex.
Angel Commodities Broking Pvt. Ltd’s Sarabjit Kaur Nangra and Akshat Vyas believe the segment could turn into a leader from being a laggard as it had been for the last few quarters because it provided “a high margin of safety, as all the negatives seem to have been discounted, notably concerns about the appreciation of?the?rupee?against?the?dollar.”