Torrent Pharmaceuticals to Cadila Healthcare, Natco Pharma to IPCA Labs - check out Pharma Results preview by Anand Rathi

Torrent Pharmaceuticals to Cadila Healthcare, Natco Pharma to IPCA Labs  results preview: Q3 FY21 is expected to have been a good quarter for Indian pharma companies. Some of the benefits from H1 FY21 are expected to have boosted growth. Sales of the companies we cover are expected to have risen 9.2% to Rs 157 bn, driven by a strong rebound in India sales, greater demand for APIs and stable pricing in the US. EBITDA margins may be high due to less promotional and travelling expenses associated with the domestic business. Anand Rathi expects EBITDA margins of companies they cover to have expanded 180 bps to 24.4% (27.6% the quarter prior). Adj. PAT is expected to have risen 18.5% to Rs 24.6 bn. 

Rebound in acute sales to have boosted India sales:

After a flat H1 FY21, the India business of companies we cover is expected to have grown 8.2% to Rs 60 bn in Q3 FY21. Rising volumes, Covid’19-related drug sales and traction in chronic therapies are likely to have driven growth in the India business of most companies. JB Chemicals (14%), Eris Life (13%) and Torrent Pharma (11%) are companies whose India business is expected to have outstripped the other companies Anand Rathi covers.

Market-share enhancement to drive US sales:

The US businesses of companies we cover are likely to have grown 5.8% to $449m in Q3 FY21 as companies have held higher market shares in key products. Cadila’s US sales might have grown 3.4% to $233m; Alkem’s 11.2% to $88m and Alembic’s 18.3% to $82m.
API growth may taper to mid-teens:

The API business of companies we cover had risen 36% in H1 FY21, boosted by greater demand. For Q3 FY21 we expect API sales growth to have been modest, at 15.4% to Rs16bn. API sales growth of Natco Pharma (30%), IPCA Labs (20%) and Aarti Drugs (20%) are expected to have outpaced the other companies Anand Rathi covers.
EBITDA margin may remain elevated:

Less promotional and travelling costs are likely to have aided a 180 bps EBITDA margin expansion to 24.4% yoy for the companies Anand Rathi cover. Sequentially, margins are expected to have contracted 320 bps due to a gradual rise in promotional costs and to the dis-continuation of the MEIS incentive by the Indian government. Anand Rathi believes long-term sustainable margins will depend on a company’s product launches, reduced NLEM exposure, stable US business and greater operational efficiencies.

Top picks:

Anand Rathi continues to be positive on companies with strong chronic domestic businesses like Torrent Pharmaceuticals (strong chronic portfolio, focus on improving productivity to boost margins), Ajanta Pharma (rebound in India sales to improve earnings quality) and CRAMS companies like Suven Pharma (niche play on innovative contract-manufacturing opportunities).