Pharmaceuticals & Healthcare - India growth to recover; US to remain stable - ICICI Securities

We expect pharma and healthcare companies under our coverage to report moderate growth during the quarter ended Dec'20. We expect easing of lockdown to support some recovery in acute portfolio and injectable products. US revenues may witness marginal growth sequentially led by improvement in volumes of injectables, specialty portfolio and new launches. We estimate India business to grow in high single digit as seen in secondary sales data. We forecast the EBITDA margin of covered companies at ~22% (+130bps YoY) led by revenue growth and cost control measures. Hospitals and diagnostic centres can report significant recovery QoQ with rise in occupancy levels and pathology test volumes. Overall, we expect our coverage universe to report ~8% revenue growth.

- India secondary sales: The Indian pharma market witnessed a growth of 6.4% in value terms for Q3FY21 (source: AWACS). Volumes declined 1.9%, while prices and new introductions grew 4.9% and 3.4%, respectively. We expect primary sales YoY growth for under coverage companies similar or faster than the industry.

- US generics: US sales may grow ~2% QoQ in Q3FY21. Dr Reddy's and Glenmark will have largely flattish sales. We expect Lupin, Alkem, Alembic and Strides to show QoQ growth in US sales led by injectables, specialty products and new launches. Other companies would remain largely flattish in a stable environment.

- Companies to watch: We expect relatively better results from: 1) Aurobindo with new product approvals and stable pricing; 2) Dr Reddy's & Biocon with new product launches in the US; 3) Sun & Alembic with traction in existing and specialty products and 4) Divis lab led by strong demand for APIs from India. Healthcare companies would report decent recovery in non-COVID business as lockdown restrictions have been eased.

- Key factors to watch out during management commentary: i) Growth outlook in India for the industry and respective companies, ii) update on restart of USFDA inspections, iii) price scenario in base US business and traction in specialty products, iv) growth in emerging markets with demand outlook and v) sustainability of recovery in diagnostics and hospitals.

Source : Equity Bulls

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