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Chronic-led DF growth and capacity expansion to shape sectoral trends

We expect pharma companies to deliver steady growth in aggregate revenue in 3QFY26, supported by improving domestic formulations (DF) momentum. However, increased competition in select products for US market and slower pace of potential launches should keep EBITDA growth trend in check. Aggregate DF sales are projected to grow 8.7% YoY to INR256b, led by continued outperformance of chronic therapies, while acute therapies remain subdued. US generics sales are expected to decline due to competition in select products, namely g-Revlimid. The hospital sector is expected to post 9% YoY revenue growth, even as occupancy declines due to aggressive capacity additions. Average revenue per occupied bed (ARPOB) should improve moderately on a higher chronic specialty mix. Having said this, the front-loading of opex related to newer hospitals/bed additions would keep margins under pressure.

DF: Expect recovery post GST disruption/steady thrust in chronic therapies

Coverage companies to see sequential improvement in growth

For companies under our coverage, we expect aggregate DF segment sales to increase by 8.7% YoY to INR256b in 3QFY26. Sequential improvement in DF is attributed to higher sales after GST transition. However, growth is likely to remain below the double-digit levels seen in earlier quarters due to weak seasonality. That said, our coverage companies are expected to track industry growth, supported by continued product launches and an increasing focus on chronic therapy portfolios.

Chronic therapies to outperform as acute growth remains subdued

In the first two months of 3QFY26 (Oct/Nov’25), chronic therapies recorded strong growth of 15.5% YoY, significantly outperforming the 11.0%/11.3% YoY growth seen in 1Q/2QFY26. In contrast, acute therapies continued to see muted performance, with growth of 7.0% YoY vs. 7.7%/5.0% YoY in 1Q/2QFY26. Robust traction in cardiac and anti-diabetic therapies supported outperformance vs. IPM during the quarter. However, overall IPM growth was partially constrained by weaker trends in antiinfective, gastro, and pain segments.

AJP/SUNP to record strong YoY DF sales in 3QFY26

We expect AJP/SUNP to report sales growth of 16.2%/13.2% YoY, driven by price increases, new product launches, and improved productivity from the medical representative (MR) force. AJP is expected to deliver double-digit growth across dermatology, ophthalmology, and pain therapies, based on IQVIA data for the three months ending Nov’25. IPCA is likely to record broad-based growth across therapies, although the anti-infective segment is expected to remain subdued. We expect ERIS to report growth of 15% YoY driven by growth in both branded DF and exports.

US sales: 3Q to reflect minimal contribution from g-revlimid

US sales expected to decline YoY in 3QFY26; excl. DRRD, sales likely to rise

For our coverage universe, US revenue is expected to decline 1.3% YoY to USD2.3b in 3QFY26, driven largely by a sharp 21.5% YoY decline in DRRD’s sales to USD310m. Excluding DRRD, US revenue is expected to grow 2.8% YoY. Cipla/ARBP are expected to post 15%/7% YoY decline in US sales due to lower sales of g-Revlimid. Notably, 3Q would showcase base business performance for DRRD and Cipla in US segment.

LPC/TRP to be outperformers for the quarter

The overall decline would be mitigated by robust growth in LPC/TRP. LPC is likely to deliver strong US growth of 27.6% YoY on account of steady traction in g-Tolvaptan/gSpiriva/Mirabegron, offset by price erosion in base portfolio and competition in gAlbuterol. Delayed competitor approval of g-Tolvaptan would extend the lowcompetition window, supporting continued growth.

TRP/ALKEM/ALPM/ZYDUS are expected to grow 25%/8.5%/5%/3.5% YoY in 3QFY26, driven by contributions from new product launches. GNP is likely to report stable US revenue as pricing pressure in base portfolio may constrain growth.

Pace of approvals for our coverage companies has slowed down

During the quarter, 12 facilities belonging to our coverage companies were inspected by the USFDA. At the industry level, final approvals stood at 154 in 3QFY26 (vs. 144 approvals in 2QFY26). For companies under our coverage, there were 32 final approvals during 3QFY26. The approval trend turned meaningfully weaker after 4QFY25, with approvals declining for three consecutive quarters, indicating consistent moderation in regulatory clearances.

Hospitals: Capacity-led growth with temporary pressure on operating metrics

For the hospitals under our coverage, revenue is expected to grow 9% YoY to INR95b in 3QFY26, driven by consistent operational execution, strong expansion of bed capacities, along with the development of new facilities, which together have enhanced operating metrics and profitability. For 3Q, we expect EBITDA margins of our coverage companies to be ~19% and aggregate EBITDA to grow 10% YoY.

Overall occupancy is expected to decline by ~480bp YoY, while ARPOB is projected to see a moderate increase, supported by a greater focus on chronic specialties. Hospitals will continue to undertake aggressive capacity expansion through new bed additions and doctor hiring to scale patient volumes and improve occupancy levels. Sector growth has been impacted by the rollout of GST 2.0 and seasonal factors. Near-term margins are expected to stay subdued owing to higher operating costs linked to capacity ramp-up, although profitability and returns should normalize and improve over the medium term as utilization improves.

MAXHEALTH plans to add ~800 beds in FY26 at Nanavati Max, the Saket Complex, and Gomti Nagar through brownfield expansion. APHS plans to operationalize 1,687 beds during 2HFY26-FY27. It has recently commissioned a 250-bed facility in Swargate, Pune. Medanta fully commercialized its 550-bed super-specialty hospital in 3QFY26 and plans to add ~400 beds in Lucknow and Patna by the end of FY27.

We expect APHS to post 11%/20%/23% YoY growth in sales/EBITDA/PAT for 3QFY26. MEDANTA is expected to deliver sales/PAT growth of 13%/7% YoY, while EBITDA may decline 1% YoY. Profitability is likely to remain subdued as operating expenses from the recently commissioned Noida hospital continue to weigh on margins. MAXHEALTH is also likely to deliver subdued performance, with sales/EBITDA posting 4%/2% YoY growth and PAT declining 1% YoY.

GNP/LPC/LAURUS to outperform within the healthcare pack

* In 3QFY26, we expect GNP/LPC/LAURUS to deliver 41%/38%/36% YoY growth in EBITDA. For GNP, income from ISB2001 deal and progress on scale-up of DF business after GST-led inventory corrections to drive financial performance.

* Steady approval in US and focus on chronic therapies in DF to support superior show for LPC in 3QFY26. Improvement in product mix and better operational efficiency should drive EBITDA growth for LAURUS in 3QFY26.

* DRRD/CIPLA/PIRPHARM are expected to report a YoY decline of 21%/20%/11% in EBITDA for the quarter. Increased competition, leading to heightened pricing pressure on products including g-Revlimid, along with operational inefficiencies, may weigh on EBITDA performance.

* We have reduced our estimates for PIRPHARM by 13%/9% for FY27/FY28, reflecting our expectation of only a gradual recovery across its segments over the mid-term and the need for greater visibility on order inflows going forward.

* Our top ideas: Laurus Labs (CDMO differentiation), Biocon (biosimilar frontrunner), and Rubicon (differentiated US play).

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