Companies in the pharmaceutical sector are expected to post steady earnings growth in the January-March quarter of the last financial year (2018-19) on the back of a pick up in US business activity led by new product launches and favourable currency movement.
A brokerage, in a research note said the pharma and healthcare sector is expected to register 13% YoY growth on the back of decent growth across segments – formulations, active pharmaceutical ingredients (APIs) and contract research and manufacturing services (CRAMs). Formulations growth is likely to be driven by 18.4% increase in the US led by growth in base business due to waning price erosion, opportunities created by high profile exits and new launches (including limited competition launches),
The fourth quarter earnings season is likely to be an interesting one with year-on-year (YoY) revenue and profit growth of Sensex companies expected at 6.9% and 21.6%, respectively, ICICI Direct said in its research note.
Another broking firm, in its earnings preview report said that the pharmaceutical sector is in a recovery mode and the positive trajectory in earnings growth witnessed in the October-December quarter of last fiscal (Q3) should also be visible in Q4. Pricing pressure in the US has moderated and new products launches are contributing to the growth. Incrementally, rationalisation of research and development (R&D) spending has also begun, which is also supporting earnings growth.
However, most of the pharma companies growth in the domestic market has not been encouraging in the first nine months of fiscal 2019 because of channel inventory correction and an overall slowdown in Indian pharmaceutical market (IPM) growth, the report said.
Reliance Securities, too, in its pharma earnings preview report said that with the low year-on-year base over the last seven quarters, the domestic formulations business of its coverage universe is expected to grow by 9.9% YoY, but will decline by 5.3% on a quarter-on-quarter basis on account of year-end inventory clearance. The IPM is expected to witness mid-teen growth over the next few years led by new product launches.
Overall, pharma companies under the coverage universe of Reliance Securities are expected to report revenue growth of 13.1% YoY, primarily on account of growth in India and the US business. The US business is likely to deliver 12.3% YoY growth in constant currency (CC) terms led by new launches, favourable currency and stable pricing.
A pharma sector analyst said the sector will see a strong performance on the back of a low base of Q4 2017-18, which was adversely impacted due to pricing pressure. Along with that, there is softening of prices in Chinese supplies of APIs, also known as bulk drugs.
PAIN RELIEVER
- 13% – Aggregate revenue growth of pharma cos expected in Q4 of 2018-19
- 21.6% – Estimated aggregate profit growth of Sensex companies in Q4
- 60% – India’s imports of its intermediary requirements from China
