Performance in Q4FY16:
- 17 companies under our coverage delivered 37.5% y‐y growth in adjusted PAT on aggregate basis, though sales growth remained modest at 15% on y‐y basis. Sales for the quarter came in at Rs341bn on aggregate basis.
- Sharp increase in adjusted PAT is partly due to low base of past year and partly due to superior product mix for some companies, which led to better operating margins for the quarter.
- The outperformers for the quarter were GNP, JBCP, LPC, SLPA, SUNP and TRP who delivered better than average y‐y growth in adjusted PAT for the quarter.
Sector outlook: Positive
- Indian pharma companies under our coverage has shown 37% y‐y growth in adjusted PAT on aggregate basis.
- The sharp rise in y‐y growth for the quarter is partly due to low base of past year. The y‐y growth is also aided by limited competition opportunities for some companies in addition to new product launches on final approval in US market.
- With respect to US market, regulatory hurdle remained key constraint for growth in business for few companies. The pricing pressure in base portfolio also impacted growth to a large extent for the quarter. We believe that regulatory concerns to be short term issues and companies are in process of implementing measures at their site to come under compliance for future growth.
- In order to mitigate competitive forces & build strong product pipeline for future growth almost all the companies have increased focus on R&D & increased expenditure on this head by almost 2x as compared to what they spent in FY15.
- The robust ANDA pipeline pending for approval and sustained R&D for new product development despite regulatory constraints implies growth story remaining intact, subject to USFDA compliance of facilities.
- Emerging markets like Africa and Brazil remain interesting opportunities due to increase in per capita income and rise in lifestyle diseases over past 5‐7 years. However, medium term growth remains affected by currency devaluation.
- Indian Pharma companies continue to launch new products in DF market, increase their reach through higher number of MRs and increasing their penetration level.
- The near‐term aggregate growth was impacted due to change in strategy by companies having considerable contribution from DF sales and pricing cuts in some products as directed by NPPA & ban on FDC. We believe that DF remains interesting opportunity as long term growth rate of 12‐15% remains intact.
- We remain selectively positive on the sector from long term point of view as growth drivers remains intact and in our view companies are in position to take the benefit of the opportunity.
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