The December quarter earnings of Indian pharma companies came on a mixed note.
Overall, there was moderate growth in profit and Aggregate EBITDA on a yearly basis. While the sales in US markets grew on a healthy note, domestic formulation saw a decent rise.
Brokerage firm Motilal Oswal Financial Services observed the December quarter earnings of the pharma companies under its coverage were in line with expectations.
"After reaching a trough in terms of year-on-year (YoY) growth in sales, EBITDA and profit after tax (PAT) for our coverage universe in FY22, the nine months of the financial year 2022-23 (9MFY23) has witnessed a healthy revival in financial performance on a YoY basis," said Motilal Oswal.
Motilal Oswal said sales of pharma companies under its coverage universe grew 11.8 percent YoY while EBITDA grew 11 percent YoY and PAT rose 4.7 percent YoY for 3QFY23.
Aided by new launches and enhanced marketing efforts, the key geographies (US/India) exhibited improved growth momentum for the quarter, Motilal Oswal pointed out.
As per estimates of Motilal Oswal, the US sales grew 12.3 percent YoY while domestic formulation sales grew 8 percent YoY in Q3FY23.
However, elevated operating costs and interest outgo impacted their performance to some extent.
"Of the 20 companies, five had beaten our earnings estimates while nine had missed our estimates. Specifically, Dr Reddy's Laboratories, Alkem Laboratories and Alembic Pharmaceuticals beat by a wide margin. Conversely, Divi's Laboratories, Gland Pharma and Lupin missed our estimates materially," said Motilal Oswal.
Under Motilal Oswal's coverage, 11 companies have seen earnings downgrades, while seven saw earnings upgrades.
"The maximum downgrades in FY23/FY24/FY25 earnings were seen in Lupin (41 percent/6 perent/5 percent), Divi's Labs (21 percent/33 percent/24 percent) and Biocon (22 percent/6 percent/4 percent), respectively. Conversely, Zydus Lifesciences (11 percent/11.5 percent/9 percent) and Dr Reddy's Laboratories (12 percent/5 percent/5 percent) witnessed maximum upgrades in earnings estimates, respectively," Motilal Oswal said.
Sun Pharma and Apollo Hospitals Enterprise are the top picks of Motilal Oswal Financial Services from the pharma and healthcare segment.
Another brokerage firm Nuvama Wealth Management pointed out that the pharma sector, on a YoY basis, reported an 11 percent growth in sales and a 9 percent growth in EBITDA in Q3FY23.
The brokerage firm said barring Sun Pharma and Lupin, who are bearing the brunt of patent expiry of licensed drugs, the pharma sector's India business remained stable.
"Most companies reported 10-12 percent growth (excluding covid). The US benefitted from gRevlimid (Dr Reddy's Laboratories, Cipla, Zydus), and seasonality (Lupin, Alkem, Ajanta Pharma, Zydus) which is likely to unwind in our view. That said, volumes are improving and price erosion stabilising, which could benefit companies like Aurobindo Pharma," said Nuvama.
The brokerage firm underscored that the NSE Pharma trades at 22 times one-year forward, which is at an 8 percent premium to Nifty, lower than its 10-year historical average of nearly 34 percent.
"This quarter saw 4 percent and 3 percent consensus earnings per share cut for FY24 and FY25, respectively. Lupin, Ipca, Divis, and Biocon saw maximum earnings cut. Zydus (strong results) and Dr Reddy's Laboratories (gRevlimid) saw earnings increase," said Nuvama.
The brokerage firm believes that the days ahead may be better for the sector due to higher opex and several other factors.
"Pharma companies are allocating more capital towards branded business (e.g. Ipca, Sun Pharma, Lupin, Ajanta Pharma, Torrent Pharmaceuticals), ensuring double-digit growth. US price erosion seems to have stabilised as players withdrew and volumes picked up with inventory easing. Revenue growth has kept pace with opex increase and inflationary pressures seem to recede," said Nuvama.
The brokerage firm said a few players like Aurobindo Pharma and Dr Reddy's Laboratories stand to gain from regulatory action against competitors.
Sun Pharma and Alkem are the top picks of Nuvama Wealth from the sector.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.