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US ramp up key to margin

Result Synopsis

US business clocked robust growth on back of buoyancy in existing business and moderate price erosion though muted India (actually flat YoY ex-animal health business) and higher opex due to full expensing of 3 facilities impacted margin. With some recovery in US, we would have expected better margin profile but for higher staff costs related to 3 new facilities. Management refrained from giving any margin/revenue guidance though it did reiterate gross margin in the range of 70%. H1 performance does not warrant any major change to growth estimates across US, India and other segments though we tweak operating costs which results in 3-8% cut in FY24/25 EPS estimates. Unless revenue picks up in US from the usual US$50-53mn range per quarter, it would be difficult for margin to move beyond 15-17% range. While we retain US$240mn revenue for US in FY25, it does depend on nature of general/onco injectable approvals (company has netted decent ophthalmic approval like Combigan) over next 2-3 quarters. Retain ADD with unchanged 22x PE for a revise TP Rs800 (earlier Rs840).

Result Highlights

Revenue up 8% YoY, in-line with expectation driven by India (+5% YoY) and robust 6% YoY rise in US

Domestic growth increasingly supported by animal health (+32% YoY to Rs940mn, 17% of India sales vs 13% in Q2 FY23)

Ex-animal health, domestic growth flat YoY; despite acute share at 30%, growth exanimal health appears underwhelming

US growth of 6% YoY and 14% QoQ supported by a benign pricing environment and potential gain in existing products

Margin flat QoQ and down 270bps YoY on higher opex – other expenses up 10% QoQ and 14% YoY

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