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India growth to remain strong; US likely to drag

We expect pharma and healthcare companies under our coverage to report subdued growth during the quarter ended Sep'21 (Q2FY22) mainly due to pricing pressure in US business. India business will witness strong growth, despite reducing contribution of covid-related sales, led by robust growth in acute segment and continuous momentum in chronic segment.

US revenue is likely to remain flattish QoQ (decline YoY) amid increasing competition in base business and slowdown in new launches. We estimate India business to grow in mid to high double digit as per secondary sales data. We forecast the EBITDA margin of covered companies at 21.9% (-131bps YoY) due to cost inflation and normalcy in selling and promotional expenses. Hospitals and diagnostics will report healthy YoY rise on a low base, but likely to be down QoQ. Overall, we expect coverage universe to report 6.4% revenue and 0.4% EBITDA growth.

* India secondary sales: The Indian pharma market witnessed a growth of 15.4% in value terms in Q2FY22 (source: IQVAI). Volumes growth stood at 8% YoY in Q2FY22. We expect companies under our coverage to report similar primary growth with acute focussed companies growing faster.

* US generics: We expect US sales to remain flat QoQ in Q2FY22. We expect Alkem, Cadila, Cipla, Dr Reddy’s, Glenmark, Torrent and Strides to show QoQ growth in US sales led by speciality pipeline and new launches. Other companies may post decline in sales due to increased competition in base business and lack of new launches.

* Companies to watch: We expect relatively better results from: 1) Alkem with strong continued recovery in acute portfolio; 2) MNCs led by lower base and acute segment recovery and 3) Divi’s Lab led by strong demand for APIs from India. Diagnostic and hospital companies would report strong growth on low base but likely to decline on QoQ basis as covid-related tests came down.

* 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 base business 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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