Home >Markets >Mark To Market >Acute segment helps pharma cos as US market challenges remain

The quick rebound in acute segment sales has come to the rescue of the Indian pharma market amid lacklustre growth witnessed in the first few months of the year.

This has also meant that the earnings outlook for Indian drugmakers has only become better despite the pricing pressures in the key US market.

The optimism is visible in the share prices. The Nifty Healthcare Index, which fell more than 3% in the January-March period, has gained more than 25% since. Notably, it has outperformed the 18.3% gains seen by the Nifty so far in FY22.

The US market’s pricing pressure remains a challenge. Most Indian pharma firms reported lacklustre sales growth in the June quarter for this market.

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Cipla Ltd and Dr Reddy’s Laboratories Ltd reported nominal year-on-year (y-o-y) growth of 1-2% in US sales. Cadila Healthcare Ltd and Lupin Ltd saw US sales fall 10-11% y-o-y. Alembic Pharma Ltd saw US sales decline 38% on y-o-y basis due to increased pricing pressure.

Ongoing regulatory issues pertaining to manufacturing facilities of Torrent Pharma Ltd and Lupin Ltd, among others, also caused trouble.

Despite the challenges, several pharmaceutical companies reported strong earnings growth. Cipla and Cadila posted 36% and 24% y-o-y growth in earnings, respectively. Lupin reported 111% y-o-y earnings growth. Companies with acute, heavy or large covid-related portfolios recorded the best growth in the June quarter, said analysts at Jefferies India Pvt. Ltd in their Q1 review note for the sector.

“Most of our coverage firms reported sequential margin improvement primarily led by strong domestic business," the analysts said.

Of course, pricing pressures in the US market are expected to persist and dampen the earnings outlook even in the coming quarters. The pressures may normalize only by mid-2022, according to analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd.

That said, a revival in domestic sales is helping drugmakers maintain their momentum. Growth in the Indian pharma market was robust in July and August at 18.3% and 15.4%, respectively. Major therapies segment growth was steady, while that of respiratory reported the highest growth at 50% y-o-y in August. Other acute therapies such as anti-infectives, gastro and pain registered 17-33% growth.

For now, pharma companies may see a strong FY22 as far as earnings go.

“We expect domestic revenue growth for our coverage companies to be in the mid to high teens in FY22," said analysts at Emkay Global Financial Services Ltd.

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