The research report by Nirmal Bang on the pharmaceutical sector maintains that margins should be affected by higher API prices, rise in vial costs (for injectables) and increase in freight costs it expects sales of Covid-driven products in the domestic branded formulation segment to dissipate on a YoY basis, as new covid cases declined in 3QFY22. US volume growth remains flattish, with a few exceptions in specific companies

Extract of the report on specific pharma companies

Alembic Pharma: We expect a 12% QoQ decline in net profit due to weakness in domestic formulation sales, which should be partially offset by growth in the US prescription sales. Alembic has seen strong QoQ growth in prescription volume in the US market for products like Losartan/Hydrochlorothiazide, Irbesartan/Hydrochlorothiazide, Oseltamivir Phosphate, Azithromycin, Losartan Potassium, Irbesartan, Lamotrigne and Vardenafil HCL.

Aurobindo Pharma: We expect a flattish quarter for Aurobindo Pharma. US prescription growth remained flattish in 3QFY22. Expect a 30bps correction in EBITDA margin (QoQ), led by higher input costs and freight costs. Aurobindo Pharma recorded extraordinary income of Rs28,139mn in 3QFY21.

Biocon: We expect a 134% QoQ jump in 3QFY22 net profit, led by the launch of Everolimus in the US market during the quarter. Biocon’s market share in Everolimus 10mg surged to over 50% in 3QFY22. We estimate the 10mg market opportunity to be US $280mn and with a 59% market share (assuming 30% price erosion), the product can add US$20-30mn in US sales in 3QFY22. We expect considerable margin expansion in 3QFY22.

Cadila Healthcare: We expect flattish volume growth in the US market; growth in the domestic market is expected to decline on a QoQ as well as YoY basis. We expect the consumer wellness business to grow by 12% YoY.

Cipla: Cipla has ramped up market share in gBrovana, gDurezol and Albuterol Sulfate HFA while it has lost market share in gTecfidera in the US market. We expect low single-digit growth in the US market. Domestic market should also grow in low single digit YoY, as the base quarter last year had the benefit of COVID product sales.

Dishman Carbogen Amcis: Operations from the CRAMS facility in India are yet to normalize and we do not see a meaningful change in its performance compared to 2QFY22. DCAL’s tax rate was ~40% in 2QFY22, which should be lower in 3QFY22. We expect high single-digit growth in revenue on a YoY basis.

Dr. Reddy’s Lab: DRL should see a 32% QoQ decline in net profit, as 2QFY22 had benefits of an extraordinary income (income from out licensing deals). In North America, we expect a QoQ growth, led by the launch of gRevlimid in Canada and ramp-up in prescription share of gVascepa, which may be partially offset by lower volumes in gCiprodex. DRL recorded impairment charge of Rs5,972mn in 3QFY21.

Gland Pharma: We expect to see a slight decline in overall sales in 3QFY22 on a QoQ basis with low single digit growth in RoW markets, flattish growth in domestic market and low single digit decline in the US market. We expect some margin contraction due to higher export contribution leading to higher freight costs.

Indoco Remedies: We expect a 30% QoQ decline in net profit, led by slowdown in domestic sales, which should decline on a QoQ basis but rise by high single digit on a YoY basis. US sales are expected to remain flattish. We expect adverse margin pressure for Indoco Remedies in 3QFY22.

Jubilant Pharmova: The Radiopharma business should deliver flattish growth as Covid cases remain elevated in the US. The adverse impact from the restricted import alert on its Roorkee formulations facility should result in a decline in generic sales on a YoY basis.

Lupin: Ramp-up in market share and volume of gBrovana and Albuterol Sulfate HFA in the US market should bode well for Lupin while it should see low single digit growth in domestic revenue on a YoY basis.

Natco Pharma: On the domestic front, we expect a sharp decline in revenue from Covid-driven products in 3QFY22 compared to 3QFY21 while revenue should be flattish on a QoQ basis. Launch of gRevlimid in Canada should lead to higher export formulation sales while being margin accretive.

Pfizer and Sanofi India: We expect low single digit revenue growth for Pfizer and low single digit decline in revenue for Sanofi on a YoY basis. In 2QFY22, Sanofi had divested its Nutraceuticals business and had reported an extraordinary income of Rs4,892mn.

Sequent Scientific: Sequent Scientific’s earnings should be under pressure due to the adverse impact of ESOP plan on a YoY basis while the same should be lower than 2QFY22 too due to the fall in Turkish business. The Turkey business is expected to be significantly impacted by the sharp depreciation in the Turkish Lira.

Sun Pharma: Specialty products should drive higher US sales for Sun Pharma in 3QFY22. Cequa and Ilumya maintained a steady increase in volume on a QoQ basis. Launch of Winlevi should drive growth in revenue in 3QFY22. Prescription volume of Levulan significantly increased in 3QFY22. We expect low double digit growth in domestic revenue on a YoY basis.