Q3 Results Preview: Pharma sector earnings growth to be driven by US generics, formulations market, says Motilal Oswal

Q3 Results Preview: Pharma companies are anticipated to report healthy year over year (YoY) earnings growth of 19.7% in 3QFY24, according to brokerage house Motilal Oswal's Q3 Result Preview report on the healthcare sector. The brokerage indicates that overall sales will rise 10.3% YoY to 69,300 crore, helped by robust demand for US generics and strong results in the domestic formulation (DF) market.

EBITDA (earnings before interest, taxes, depreciation, and amortisation) is predicted to increase by 15.2% YoY to 15,900 crore, driven by low operating costs (lower freight/staff costs) and a larger percentage of niche launches in US generics. However, profit after tax (PAT) is anticipated to increase at a faster rate of 19.7% YoY to 9,700 crore due to a lower tax and depreciation rate.

Hospital profitability is expected to increase, according to the brokerage, as improved realisation and operating leverage should result from better case mix/payor mix optimisation. DF: YoY growth steady at high single digits The brokerage expects the companies' combined DF segment sales to grow 8.7% YoY to 18,400 crore in 3QFY24.

This growth will be driven primarily by the companies' strong performance in antiinfective, gastro, and pain therapies, which outperformed IPM during the quarter. It will, however, probably be somewhat countered by a moderate increase in anti diabetic and dermatological therapies. In order to increase sales growth and profitability, companies are concentrating on launching niche products and increasing the productivity of medical representatives (MRs).

The brokerage projects that Torrent Pharma and Alkem Lab will achieve 16% and 12% YoY sales growth in the large cap space, respectively, thanks to new launches, an emphasis on OTC business, improved MR productivity, and robust growth in their respective key therapies. "We expect Sun Pharma/ to report 8% YoY growth each in DF revenue, led by steady traction in existing therapies and an increase in MR productivity.

We estimate Eris Lifesciences/Ajanta Pharma to deliver 15%/12% YoY growth in DF sales, due to strong growth in respective portfolios and new launches, " the brokerage said. US: Partial deceleration in YoY growth trend For the quarter, the brokerage projects 8.3% YoY growth in US sales to USD2.2 billion.

This growth, however, is less than the 15.8% YoY average growth over the previous four quarters. The YoY growth uptrend in US generics is anticipated to be strengthened by the lessening of pricing pressure and the growing popularity of products with limited competition, like g Revlimid and Spiriva. Aurobindo Pharma, Lupin, and in particular are anticipated to generate YoY growth of 19%, 16%, and 15% during the quarter.

Niche launches (new launches for Aurobindo Pharma, g Spiriva for Lupin, and gRevlimid for Cipla) will drive growth in these companies. The specialty portfolio is expected to drive a 9% YoY growth in Sun Pharmaceutical's US sales. Although Torrent Pharma met all compliance requirements at the Dahej facility, the product has not yet received approval.

"Hence, we expect moderate 5.6% YoY growth in Torrent Pharma’s US sales for the quarter. For Glenmark Pharma/Alkem Lab, US sales are expected to decline 7%/3% YoY. In 3QFY24, our coverage companies received 53 ANDA approvals (final) compared to 51 in 2QFY24," the brokerage said. Livemint tops charts as the fastest growing news website in the world to know more.

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