The Q3FY22 earnings narrative for pharma companies is likely to pan out on similar lines as seen in Q2FY22 but with some more cost pressure due to volatility in input prices and persisting logistical challenges.

The I-direct healthcare universe (12 coverage companies) is expected to post YoY growth of 5.8% to Rs 44,583 crore. Domestic formulations (select pack) are expected to grow 10.6% YoY to Rs 11,621 crore on the back of almost complete normalisation of MR activities even as Covid related revenues are likely to shrink significantly in Q3FY22. Continuous traction from the acute segment (momentum began from Q1) besides normalised trend in chronic segment are expected to continue in Q3FY22.

The weakness in the US generics space is expected to persist due to price erosion in base business offsetting any market share gain in new launches. The US (select pack) portfolio is expected to grow 0.8% YoY to Rs 12,825 crore.

Europe (select pack) is expected to grow 5.7% YoY mainly due to a fully normalised quarter for marketing activities partially offset by logistical challenges. API segment (select pack) is expected to grow ~4.2% YoY with healthy order book position. In APIs, it remains to be seen how much revenue the companies recognise in Q3FY22, given the input availability, cost volatility and their ability to pass on the same to customers.

 On the companies front, four out of 12 companies are likely to report 9%+ YoY growth. Key monitorables are: Divi’s, which is likely to register around 18.7% YoY growth while Biocon, Ajanta Pharma and Sun Pharma are likely to register 12.3%, 10.7% and 9.3% YoY growth, respectively.

EBITDA margins at 23.4% with downward bias

 EBITDA of the I-direct healthcare universe is expected to grow 6.5% YoY to | 10,436 crore. EBITDA margins are likely to remain flat YoY at 23.4%, mainly due to higher input cost being offset by expense rationalisation measures implemented by companies.

 Adjusted PAT to decline 4.2% YoY

Adjusted PAT is expected to de-grow ~ 4.2% YoY to | 6,486.9 crore. Delta vis-à-vis EBITDA is likely due to an increase in depreciation and interest

Ajanta Pharma: Revenues are expected to grow 10.7% YoY to Rs 829.1 crore on the back of 12.6% growth in domestic formulations and 7.9% growth in export formulations. EBITDA margins are expected to decline 387 bps YoY to 28.4% mainly due to increase in raw material expenditure (gross margins down 497 bps YoY). EBITDA is likely to decline 2.5% YoY to Rs 235.5 crore. Adjusted PAT is expected to decline 8.7% YoY to Rs 161.3 crore

Alembic Pharma: Revenues are expected to decline 2.3% YoY to Rs 1283.7 crore, as 12% YoY growth in domestic formulations to Rs 468.2 crore is likely to get offset by 28.9% decline in US revenues to Rs 364.2 crore. EBITDA margins are expected to decline 1063 bps YoY to 17.2% mainly due to YoY increase in input cost, employee expenditure and R&D cost. EBITDA is expected to de-grow 39.7% YoY to Rs 220.2 crore. Subsequently, adjusted PAT is expected to decline 51.7% YoY to Rs 141.3 crore

Aurobindo Pharma: Revenues are expected to decline 1.1% YoY to Rs 6294.7 crore, mainly due to de-growth in the US (YoY decline of 1.5%) and ARV segment (YoY decline of 60%) being offset by growth in the RoW and API business. EBITDA margins are expected to decline 165 bps YoY to 19.8%. Subsequently, EBITDA is likely to decline 8.7% YoY to Rs 1249.4 crore. Adjusted PAT is expected to de-grow 10.8% YoY to Rs 746.5 crore.

Biocon: Revenues are likely to grow 12.3% YoY to Rs 2079.5 crore mainly due to 11.8% YoY growth in biosimilar segment to Rs 859.5 crore and 8% YoY growth in Syngene to Rs 631.3 crore. EBITDA margins are expected to increase 312 bps YoY to 24.7%, mainly due to a reduction in other expenditure. EBITDA is expected to grow 28.6% YoY to Rs 513.7 core. Adjusted PAT is likely to decline 1.6% YoY to Rs 165.8 crore.

Cadila Healthcare: Revenues are expected to grow 1.5% YoY to Rs 3853 crore on the back of 11% YoY growth in India business to Rs 1224.9 crore being offset by 3.5% YoY decline in US business. EBITDA margins are likely to increase 24 bps YoY to 21.5% as decline in other expenditure is likely to offset increase in raw material expenditure. EBITDA is expected to increase 2.7% YoY to Rs 828.4 core. Adjusted PAT is expected to grow 8.7% YoY to Rs 573 crore.

Cipla: Revenues are expected to grow 3.5% YoY to Rs 5349.9 crore mainly due to 8% YoY growth in domestic formulations to Rs 2409.5 crore and US business growing 3.6% YoY to Rs 1074.6 crore. RoW sales, on the other hand, are likely to decline 10% YoY to Rs 967.5 crore. EBITDA margins expected to decline 240 bps YoY to 21.4%, mainly due to increase in raw material and other expenditure. EBITDA is expected to de-grow 6.9% YoY to Rs 1145.6 crore. Subsequently, adjusted PAT is likely to de-grow 14.4% YoY to Rs 640.3 crore.

Divi's Lab:  Revenues are expected to grow 18.7% YoY to Rs 2019.7 crore, mainly due to likely 50% YoY growth in custom synthesis segment to Rs 1020.9 crore. Gross margins are likely to decline 280 bps YoY to 66.3% while EBITDA margins are expected to remain healthy at 40.5%. Net profit is expected to grow 25.9% YoY to Rs 592.4 crore

Dr Reddy's: Revenues are likely to grow 8.1% YoY to Rs 5341.9 crore mainly due to 9% YoY growth in domestic formulations to Rs 1045.4 crore. US business is expected to grow 8.7% YoY to  Rs 1891.4 core. EBITDA margins are likely to increase 1166 bps YoY to 22.6% on account of Rs 597.2 crore of impairment expense in base of Q3FY21. EBITDA is expected to increase 123.6% YoY to Rs 1205.9 crore. Adjusted PAT is expected to grow 20.8% YoY to Rs 844.3 crore.

Ipca Lab: Revenues are expected to grow 5.5% YoY to Rs 1486.7 crore, mainly due to 16% YoY growth in domestic formulations to Rs 606.9 crore being partially offset by YoY de-growth of 11.6% in export formulations to Rs 381 crore. EBITDA margins are expected to decline 371 bps YoY to 22.3% while EBITDA is expected to decline 9.6% YoY to Rs 331.7 crore. Subsequently, net profit is expected to decline 12% YoY to Rs 233.7 crore.

Lupin: Revenues are expected to grow 4.9% YoY to Rs 4124.6 crore, mainly driven by 10% YoY growth in domestic business to Rs 1503.6 crore and 1.9% YoY growth in the US to Rs 1470 crore. EBITDA margins are expected to decline 343 bps YoY to 16% while EBITDA is likely to de-grow 13.6% YoY to Rs 672.6 crore. Adjusted PAT is expected to de-grow 27.2% YoY to Rs 318.9 crore.

Sun Pharma: Revenues are likely to grow 9.3% YoY to Rs 9656.9 crore, mainly due to 12% YoY growth in domestic formulations to Rs 3083.1 crore. Taro's sales are expected to grow 6.8% YoY to Rs 1103.6 crores while US (ex-Taro) is likely to grow 4.2% YoY to Rs 1799.9 crore. EBITDA margins are expected to decline 73 bps to 26.5% while EBITDA is expected to grow 6.4% YoY to Rs 2559.1 crore. Adjusted PAT is likely to decline 5.6% YoY to Rs 1749 crore.

Torrent Pharma:  Revenues are expected grow mere 8.9% YoY to Rs 2173.2 crore, mainly due to 11% YoY growth in domestic formulations to Rs 1032 crore. Gross margins are likely to decline 33 bps YoY to 71.5% while EBITDA margins are expected to decline 20 bps YoY to 30.2%. EBITDA is likely to increase 8.2% YoY to 656.9 crore. Adjusted PAT is expected to grow 7.8% YoY to Rs 320.3 crore.