Continuity of domestic formulations growth with an increasing share of non-Covid portfolio is likely to drive Q2FY22 sales even as expected weakness in the US generics space could act as a spoiler for overall momentum. The Idirect healthcare universe (12 coverage companies) is expected to post YoY growth of 5.5% to Rs 46,123 crore. Domestic formulations (select pack) are expected to grow 14% to Rs 11,219 crore due to continuous traction from the acute segment (momentum began from Q1) besides the normalised trend in the chronic segment. We expect a significant shift in growth momentum from Covid to the non-Covid portfolio on the back of receding active cases and growing vaccination drive across the country.

The US momentum (or lack of it) continues to trend the Q1 story amid lack of meaningful launches, price erosion and regulatory challenges including lack of inspections and approvals. The US (select pack) portfolio is expected to de-grow 2.2% YoY to Rs 12,306 crore.

Europe is expected to grow 8.4% YoY driven by the opening up of marketing and other channels post-Covid. Amid a higher base, the API segment is expected to grow merely by 2.8% YoY. On the hospitals front, the reduction of Covid in Q2FY22 is likely to change the product mix more towards elective occupancies, which is likely to improve realisations.

On the companies front, four out of 12 companies are likely to report 12%+ YoY growth. Key monitorables are: Divi’s, which is likely to register around 21% growth while Sun Pharma, Ipca Labs and Apollo Hospitals are likely to register 11.5%, 16.9% and 14% YoY growth, respectively.

EBITDA to remain flat YoY; margins to decline at 22%

EBITDA of the I-direct healthcare universe is expected to de-grow 0.2% YoY to Rs 10,254 crore. EBITDA margins are likely to decline 126 bps YoY to 22.2%, with an increase in marketing & travel expenses besides higher raw material cost.

Adjusted PAT to decline 6.3% YoY

Adjusted PAT is expected to de-grow 6.3% YoY to Rs 6,066 crore. Delta visà-vis EBITDA is likely due to an increase in depreciation, tax rate being partially offset by a decline in interest cost.

Here is the list of companies tracked in the I-direct healthcare universe

Alembic Pharma: Revenues are expected to decline 6.5% YoY to Rs 1,363 crore as 16% growth in domestic formulations to Rs 481.4 crore is likely to get offset by a 30.4% decline in US revenues to Rs 405.2 crore. EBITDA margins are expected to decline by 1,253 bps YoY to 17.9%, mainly due to an increase in raw material and other expenditures. EBITDA is expected to de-grow 45% YoY to Rs 244 crore. Subsequently, net profit is expected to decline 49% YoY to Rs 169.4 crore

Apollo Hospitals: Revenues are likely to grow 14% YoY to Rs 3,148.5 crore, mainly due to strong growth in the hospital and pharmacy segment albeit on a lower base. EBITDA margins are likely to be at 15% against 10.9%, 13.8% in Q2FY21, Q1FY22, respectively. Net profit is expected at Rs 185.2 crore against a profit of Rs 28 crore in Q2FY21

Aurobindo Pharma:  Revenues are expected to decline 5.6% YoY to Rs 6,117.4 crore, mainly due to de-growth in the US, RoW and ARV segment being partially offset by growth in Europe. US weakness could be due to muted ex-injectable portfolio growth owing to a slowdown in new launches. EBITDA margins are likely to remain at 20%. Net profit is expected to de-grow 12% YoY to Rs 708.6 crore, trending with the operational performance.

Biocon: Revenues are likely to grow 10.1% YoY Rs 1,921.1 crore, mainly due to reasonable growth in contract research (Syngene) and base effect impact in the biosimilar segment, which is expected to grow 24% to Rs 840.6 crore. EBITDA margins are expected to decline 42 bps YoY to 22%, mainly due to higher raw material costs. EBITDA is expected to grow 8.1% YoY to Rs 423 core. Adjusted profit is expected to de-grow 36% YoY to Rs 107 crore. Delta vis-a-vis EBITDA was due to higher interest and tax rates.

Cadila Healthcare: Revenues are expected to de-grow 2.9% YoY Rs 3,710.8 crore as strong growth in domestic formulations was partially offset by a decline in the US formulations mainly due to higher erosion in mesalamine franchise. EBITDA margins are likely to decline 172 bps YoY to 20.9%, mainly due to higher other expenditures. EBITDA is expected to decline 10.2% YoY to Rs 775 core. Adjusted net profit is expected to de-grow 9.6% YoY to Rs 522.4 crore on the back of lower financial cost

Cipla: Revenues are expected to grow 2.2% YoY to Rs 5,147.5 crore, mainly due to 9.4% growth in domestic formulations to Rs 2,286.5 crore. US formulations are expected to grow 9.8% YoY to Rs 1152.1 crore. RoW sales, on the other hand, could pull down growth. EBITDA margins are expected to decline 65 bps YoY to 22.7%, mainly due to an increase in other expenditures. EBITDA is expected to de-grow merely by 0.7% YoY to Rs 11,68.9 crore. Subsequently, net profit is expected to grow 3.3% YoY to Rs 687.7 crore

Divi's Lab: Revenues are expected to grow 21% YoY to Rs 2,116.7 crore, mainly due to strong growth in Generic and Custom Synthesis segment. EBITDA margins are expected to remain healthy at 41%. Net profit is expected to grow 23.5% YoY to Rs 641.5 crore.

Dr Reddy's: Revenues are likely to grow 6.6% YoY to Rs 5,233.8 crore, mainly due to 21.3% growth in domestic formulations to Rs 1106.6 crore amid Wockhardt portfolio acquisition. US business is expected to grow 1.5% YoY to Rs 1,859.4 core. EBITDA margins are likely to decline 395 bps YoY to 19.6%, mainly due to higher other expenditures. EBITDA is expected to decline 11.3% YoY to Rs 1025 crore. Net profit is expected to de-grow 22% YoY to Rs 602 crore.

Ipca Lab:  Revenues are expected to grow 16.9% YoY to Rs 1,591 crore, mainly due to 16% growth in domestic formulations to Rs 621.2 crore and a 13.1% increase in API segment to Rs 430.8 core. Export formulations are expected to grow 11% YoY to Rs 404.5 crore. EBITDA margins are likely at 24.4% against 26.5%, 26.6% in Q2FY21, Q1FY22, respectively. Subsequently, net profit is expected to increase 8.4% YoY to Rs 289.6 crore.

Lupin:  Revenues are expected to grow 7.4% YoY to Rs 4,118.1 crore. YoY growth of 14.4% in domestic business to Rs 1,524.2 crore and 2.1% YoY growth in US to Rs 1,427.9 crore is expected to be partially offset by 10% decline in API segment to Rs 336.5 crore. EBITDA margins are expected at 18.2% against 15.2%, 21.7% in Q2FY21, Q1FY22, respectively. EBITDA is expected to grow 29.1% YoY to Rs 750.2 crore. Adjusted net profit is expected to grow 104.9% YoY to Rs 423.3 crore.

Sun Pharma: Revenues are likely to grow 10.9% YoY to Rs 9,482.2 crore, mainly due to 15.9% YoY growth in domestic formulations to Rs 2,933.6 crore and 14.7% YoY growth in the US (Ex Taro) to Rs 1,639.1 core. Amid a lower base, Taro's sales are expected to grow 5% YoY to US $150 million. EBITDA margins are expected to decline 190 bps to 24%. Adjusted net profit is expected to decline 18% YoY to Rs 1,485.7 crore.

Torrent Pharma: Revenues are expected to grow a mere 7.7% YoY to Rs 2,172.9 crore. YoY growth of 9.4% in domestic formulations to Rs 1,053.5 crore is expected to be partially offset by 9.8% degrowth in US business to Rs 295 crore. EBITDA margins are expected to be flat at 31%. Net profit is expected to increase 7.4% YoY to Rs 332.9 crore due to lower interest costs and higher other income.