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India business to witness strong growth

We expect pharma and healthcare companies under our coverage to report strong growth during the quarter ended Jun'21. This will be mainly driven by India business on a low base and strong recovery seen in acute categories including COVID-19 related treatments. US revenues likely to remain stable QoQ with improvement in volumes of injectables and new launches offset by price erosion.

We estimate India business to grow in high double digit as per secondary sales data. We forecast the EBITDA margin of covered companies at 22.5% (+70bps YoY) led by revenue growth and cost control measures. Hospitals would continue to report recovery in occupancy levels while Diagnostics will report healthy YoY rise on a low base. Overall, we expect our coverage universe to report 16.6% revenue and 20.2% EBITDA growth.

* India secondary sales: The Indian pharma market witnessed a growth of 37.2% in value terms for Q1FY22 (source: AWACS), partly aided by COVID-19 portfolio. Volumes grew 23.0%, while prices and new introductions grew 6.5% and 7.7%, respectively. We expect primary sales YoY growth for under coverage companies to be strong during the quarter.

* US generics: We expect US sales to remain flat QoQ in Q1FY22. We expect Alkem, Cadila, Dr Reddy’s and Aurobindo to show QoQ growth in US sales led by injectables and new launches. Other companies would post flattish to marginal decline in a stable environment due to lack of new launches.

* Companies to watch: We expect relatively better results from: 1) Cipla as key products in US grow and benefit from COVID-19 drugs in India; 2) Alkem with strong recovery in acute portfolio; 3) Glenmark with strong favipiravir sales and 4) Divis lab led by strong demand for APIs from India. Diagnostic companies would report strong growth on low base and high number of COVID-19 tests.

* 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.

* Key risks: Adverse outcome of USFDA inspections, currency volatility, and inclusion of more products under NLEM in India.

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