Q2 result preview: Strong US performance to lift the show for pharma companies

Pharma Q2 result preview: Indian Pharmaceutical companies that saw a strong June quarter performance led by growth in the US markets may see the momentum continue in July-September 2023 quarter.

“We expect a healthy 12% and 9% year-on-year sales and Ebitda growth in 2QFY24 for our pharma coverage, led by US pricing stability, traction across most branded market” said analysts at Kotak Institutional Equities in their result preview report.

The respite on pricing pressure for generic drugs in the US markets was seen by the companies and same is also being supported by the drug shortages. Nevertheless, there has been some softness in growth rates observed in the domestic pharma markets during the quarter led by lower sales of acute range of products. The irregular monsoon and high base of last year were the two key reasons for the same.

Analysts at Motilal Oswal Financial Services Ltd expect aggregate sales in the domestic formulation segment to grow moderately by 7.6% year-on-year, affecting overall sales growth to some extent for the quarter. Nevertheless, they expect healthy growth in the US generics segment at 14.6% y-o-y during Q2.

The limited competition products launched by the Indian Companies as multiple myeloma drug Revlimid generics land others are likely to drive growth in the US markets. Apart from continued benefits of limited competition launches and easing price pressure in the US generics, softening input prices, freight and energy cost and rupee depreciation are other factors that will help drive earnings of pharma companies.

Also Read - Q2 Earnings Preview: Mixed bag performance for mining, metals sector: Nuvama

Companies such as Sun Pharmaceutical Industries Ltd, Dr Reddy’s Laboratories Ltd, Lupin Ltd, Zydus Lifesciences, Cipla Ltd etc are likely to remain in focus, having significant dependance on the US market contributions in their earnings growth.

As per Surya Patra, research analyst at PhillipCapital Institutional Equity research , while the US generic price pressure eased sequentially, the incremental benefits from key launches (including generics of Revlimid, Spiriva, Chantix, etc) and 4% Rupee depreciation year-on-year complements US generics growth. Companies under PhillipCapital coverage universe are estimated to deliver 15% year-on-year growth led by more than 20% growth by Aurobindo Pharma, Cipla, Zydus, Lupin largely due to contributions from generics of Revlimid and respiratory products Spiriva.

Analysts at Motilal Oswal Financial Services Ltd also expect Lupin Cipla, Aurobindo to deliver strong 32%, 29%, 21% year-on-year growth respectively in 2Q.

Also Read- Infosys Q2 Results Preview: Expect muted CC revenue growth; commentary on deal pipelines to be in focus

The momentum in the US sales growth is likely to continue moving forward too. High price erosion, occurring a year or so after Covid, prompted multiple players to exit products where they did not have a fair market share. This, in turn, has resulted in shortages in the market, leading to improved pricing dynamics said said Prashant Nair Lead Analyst, Healthcare and Pharma, Ambit Capital. We should expect this trend to continue in the near term, added Nair