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Q2 FY23 Healthcare Results Preview

Modest quarter, operational performance to recover sequentially

For the pharma companies we cover, Q2 FY23 revenue growth is expected to be 11% y/y. Domestic formulations is expected to have grown due to price hikes and the low base for chronic therapies. Despite pricing pressure, their US business would have grown 2.6% q/q (cc) due to new products. Slight softening of raw material prices and normal SG&A costs would lead to a 190bp y/y contraction in EBITDA margins and a 5% drop in total adj. PAT to Rs26bn.

Price hikes in Q2. The domestic business would have grown 11.6% y/y to Rs81.7bn, benefitting from hiked prices in Q1. JB Chemicals (Sanzyme), Torrent (Dr Reddy’s portfolio) and Eris (Oaknet) would have healthy ~16-35% growth backed by acquisitions. Covid-boosted companies such as Alembic (Azithral) and Indoco (ATM, Karvol) would have grown 4-7%. On the high base and lack of launches, Pfizer and Natco would have declined 3-5%.

Modest growth in the US. Factoring in the sustained price erosion on the base portfolio and a few launches, we expect the US business to grow a modest 2.6% q/q to $402m. Product launches should aid growth for Zydus (Revlimid), Indoco (Vimpat) and Alembic (Formoterol Fumarate). The rupee, depreciating 3.3% to Rs79.8 to a dollar, should have helped export-based companies.

Q/q EBITDA margins to see some relief. With some softening of raw material prices, and with SG&A costs fully back to pre-Covid levels, we expect the EBITDA margins of companies we cover to come at 22% (up 100bps q/q).

Preferred picks: Ajanta, Eris, Suven Pharma, Torrent and JB Chemicals.

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