The pharmaceutical companies under our coverage universe are expected to report a muted performance on YoY basis in 2QFY18 due to multiple headwinds in the US led by increasing pricing pressure, lack of niche opportunities and channel consolidation. However, we see sequential improvement on account of lower base and rebound in domestic formulation business. We expect sales, EBITDA and PAT of the companies under our coverage universe to decline by 2.2% YoY (+10.1% QoQ), 22.7% YoY (+21.2% QoQ) and 31.0% YoY (+23.6% QoQ), respectively. Further, their EBITDA margins are expected to decline by 572bps YoY (+198bps QoQ) due to weak US sales. However, we continue to remain positive on the long-term prospects of Indian pharmaceutical sector and recommend being stock-specific.
Pricing Pressure & High YoY Base to Impact US Biz
Most companies in our coverage universe are expected to report muted growth in US sales (YoY) due to high revenue base in 2QFY17 and steep price erosion (led by faster ANDA approvals and channel consolidation). However, we expect 2% sequential growth led by niche launches (gLialda, gRenvela and gVytorin). We believe regulatory concerns (US FDA) continue to remain for the pharmaceutical sector. On a positive note, the US FDA has approved higher number of ANDAs for Indian companies (138 ANDAs in 1HCY17 compared to 201 in CY16). The US business continues to remain the mainstay for most companies under our coverage universe. Several measures i.e. aggressive R&D spend and scale-up in complex ANDA filings are expected to aid sustainable and meaningful growth in their US business. We envisage improvement in US sales of the companies like ARBP (gRenvela) and Cadila HC (gLialda), while we expect weak US sales for Sun Pharma (price erosion) and Lupin (steep price erosion in gGlumetza and gFortamet)
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