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Third quarter of 2021-22 to be modest for listed Indian pharma companies: Emkay Global

Gireesh Babu, New Delhi
Friday, January 14, 2022, 08:00 Hrs  [IST]

The third quarter of the fiscal year 2021-22 for the pharmaceutical sector, especially the listed firms, is expected to be a modest quarter owing to various reasons including the marginal growth in the US market, slowed down domestic Covid-19 market and higher input costs, among others, according to a brokerage report.

The Q3 is expected to be modest due to absence of high-value launches and continued price erosion in the US; absence of Covid contribution in the domestic business; and higher input costs, says a latest Sector Update report by Emkay Global Financial Services Ltd.

“On an aggregate basis, we expect yoy revenue growth of around 4%, while EBITDA (earnings before interest, taxes, depreciation, and amortization) and PAT (profit after tax) are expected to decline by 1% and 4%, respectively,” it said.

Revenue growth should be largely driven by year-over-year (yoy) growth in the domestic formulations business, which benefited from the acute segment’s recovery and the low base from last year.

EBITDA margin is expected to experience a compression of ~110bps yoy due to continued normalization of marketing and promotional activities in branded markets. On a Quarter-on-Quarter (qoq) basis, revenues, EBITDA and PAT are expected to decline by 2%, 6% and 12%, respectively, due to the absence of Covid-related tailwinds.

US revenues of the listed pharma companies which Emkay Global tracks, are expected to grow by 2% sequentially. This would be largely driven by the ramp-up of products launched in the second quarter, as launch activity remained subdued in the third quarter.

Most companies have launched 3-5 products in the US market during the third quarter, with almost no high-value launches, it said.

“For Sun Pharma, we expect the continued ramp-up of specialty to drive US revenue growth, which would be partially offset by price erosion in the generics business. While the Flu season seems to be picking up in the US, its contribution will only be visible in Q4 due to the timing,” it added.

The brokerage firm is expecting a normalised quarter for the domestic formulations business, with aggregate yoy growth of around 10% for its coverage companies. Secondary sales data from IMS for the months of October and November suggests yoy growth of 10% for these companies (two-year CAGR also at 10%). The yoy growth in the Indian Pharmaceutical Market is driven by the recovery in acute segments, while the chronic segment remains stable.

While the other expenses are expected to increase by around 6% yoy but to remain flat qoq. The yoy increase is due to the normalization of sales and promotional activities in the branded business. As a proportion of revenue, other expenses should inch up by ~60bps qoq and 40bps yoy. For its coverage universe, Emkay expects the employee expenses to remain largely stable sequentially. However, R&D cost as a percentage of revenue is expected to increase by around 60bps.

The EBITDA margin of the companies it covers are expected to compress by around 100bps yoy and qoq due to raw material price increases, normalization of operating expenses and R&D, partially offset by modest Rupee depreciation against the US Dollar.


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