Pharma Outlook 2024: How are Cipla, Sun Pharma, Dr Reddy's and others likely to perform this year?

The pharmaceutical sector has seen improvement in the recent quarters due to several factors, such as improved performance in the US generics market, robust performance in branded markets, moderation in raw material costs, and market share gains in recently launched products. All these factors have recently contributed to the strong earnings of domestic pharma companies.

As we advance, many domestic focused companies are expected to generate mid teen growth in CY24 amid a focus on new product launches, pick up in volume growth and improved demand for generics and branded products. To take advantage, pharma companies ( , Torrent Pharma, Eris Lifesciences, and JB Chemicals, among others) have increased their chronic presence, focused on new product launches, and entered into new therapies.

API (Active Pharmaceutical Ingredient) companies are undergoing capex, which will aid in further top line growth; a healthy product mix and softening input costs are likely to sustain higher operating margins of ~20 30% in CY24. We expect India's business to report higher single digit growth in CY24 driven by deferred acute demand, an uptick in the chronic segment, higher MR productivity, new product launches, and the expectation of a healthy flu season.

The US market is expected to continue to grow strongly due to the normalisation of base business prices, field force expansion, continuous acceleration of gRevlimid, and the introduction of new products (gSpiriva, gPrezista) despite pricing challenges, intense competition, and stricter regulatory compliance requirements.

Many companies are unlocking value for the shareholders. Sanofi is undergoing a demerger of its OTC (over the counter) segment, and Strides is expected to demerge its CDMO (contract development and manufacturing organizations) business in CY24. Thus, we remain optimistic about the growth outlook of Indian pharma companies.

Preferred Picks Indian pharma companies, such as Torrent Pharma, Alkem Lab, Eris Life Sciences, and JB Chemicals, are our top picks in the domestic formulation business. As we advance, Torrent's focus will include cost optimisation to improve the tender segment's competitiveness, launch new products, and develop its OTC business.

The management expects to maintain gross margin at 70 72% and EBITDA (earnings before interest, taxes, depreciation, and amortization) margin at ~30% for the upcoming quarters. Going ahead, a strong presence in highly profitable branded business in domestic, Brazil, Germany and ROW markets and its completion of the Curatio acquisition will provide strong growth visibility.

On the other hand, Alkem's domestic and international businesses are likely to witness better trends, led by improving demand, increasing market share, and softening raw material costs. With India's business expected to grow at ~15% CAGR over the FY23 25E period, we expect margins to improve towards 18% by CY24 gradually.

Moreover, we continue to be constructive on Eris Lifescience's plans to continue its strategic priorities for CY24, including successfully commercialising its new product pipeline. The company has guided for a 33% EBITDA margin and 20% PAT (profit after tax) margin for CY24. Also Read: Additionally, JB Chemicals looks to continue its growth momentum, driven by the geographical expansion of legacy brands, scale up in Sanzyme, Azmarda, and Razel franchises, MR productivity improvement, scale up of contract manufacturing business and new product launches across markets.

The company strongly focuses on the domestic chronic portfolio, CMO segment, and traction in export formulations, providing strong earnings visibility for CY24. US focused pharma companies such as Sun Pharma, , and Dr. Reddy's are our preferred picks as they witnessed normalcy in demand, new launches (particularly gRevlimid, gSpiriva, and gPrezista) and stabilising pricing pressure in the US base business.

We expect Cipla to work towards establishing a strong foundation for growth in upcoming quarters led by continuing leadership in chronic therapies in the branded prescription business in India. The company expects solid growth across geographies to continue and increased overall EBITDA margin guidance from 23% earlier to 23 25% in CY24.

Meanwhile, Dr. Reddy’s continues to strengthen the pipeline organically and through business development to drive growth and create differentiation. The management retains its strong guidance of over 25% EBITDA margin in the near term, driven by settled product agreements like gRevlimid and ~15 20% growth in the India business.

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