Pharma firms likely to report strong growth in fourth quarter: Report

Pharmaceutical companies are expected to report another strong quarter, driven by year-on-year sales growth in both India and US, analysts at brokerage firm Sharekhan said in a report.

In India, sales are expected to increase by 10 per cent despite the traditionally weaker season, attributed to several factors including a 12 per cent hike in the Wholesale Price Index (WPI) across National List of Essential Medicines (NLEM) and non-NLEM products, new product launches, a focus on chronic sales, and increased productivity of medical representatives (MRs). Sharekhan predicts that companies such as Torrent Pharma could see a 16 per cent year-on-year growth, while Sun Pharma and Lupin are expected to achieve 12 per cent growth each, driven by volume growth and aggressive hiring of MRs respectively.

Meanwhile, the US market is projected to grow by 12 per cent, propelled by penetration into complex products and stability in price erosion in the base portfolio. Sharekhan forecasts a 9 per cent year-on-year growth in US sales to reach $2,128 million in Q4FY24, with contributions from specialty and niche products. However, excluding sales of gRevlimid, a drug used in treatment of certain forms of cancer, a decline of 3 per cent in constant currency terms is expected.

The report reflects on the expected margin expansion, with EBITDA expected to grow by a healthy double-digit percentage, largely driven by factors such as product launches, diversification into complex/specialty products, stability in price erosion, and growth in the chronic portfolio. Sharekhan predicts that Strides could report the highest EBITDA margin also known as operating profit margin at 19.4 per cent, followed by Torrent Pharma at 32 per cent, Sun Pharma at 28 per cent, and Lupin at 20 per cent.

In terms of the sector outlook, Sharekhan suggests a favourable risk-reward scenario for Indian pharmaceutical companies, citing opportunities such as rising loss of exclusivity (LOE) opportunities, long-term growth prospects in the US, and emerging opportunities in the active pharma ingredient (API) space. Despite ongoing challenges like higher R&D expenditure and USFDA inspections, Sharekhan believes that pharma companies have strong growth potential in the long term.

Regarding valuation and picks, Sharekhan remains selective in the pharmaceutical space, preferring companies with better earnings growth visibility and stable valuations. In the large-cap space, companies such as Sun Pharma, Dr. Reddy’s, Zydus, and Lupin are favoured, while in the mid-cap space, Strides and Sanofi are highlighted as promising picks.