IGI Logo

Robust earnings growth momentum to sustain in 3QYF25

Superior execution in DF may get offset by moderation in the US growth

Pharma companies under our coverage are expected to report healthy YoY earnings growth of 19.4% in 3QFY25. We expect aggregate sales to grow 10% YoY to INR787b, aided by strong traction in Domestic Formulation (DF) sales and partially supported by the US segment. EBITDA is expected to exhibit growth of 16.8% YoY to INR188b, led by a higher share of niche launches in the US generics and a decline in raw material prices. PAT is expected to grow 19.4% YoY to INR117b. For hospitals, we expect profitability to improve due to the addition of beds, higher volumes, and optimization of the case mix/payor mix.

DF: Coverage companies to outperform IPM

Coverage companies outperforming IPM by 920bp during the quarter

In 3QFY25, we expect aggregate sales of the DF segment to grow 16.2% YoY to INR209b for companies under our coverage. Compared to IPM growth of ~7% YoY, the coverage companies are in good stead to perform better than IPM.

Chronic therapies to drive IPM growth; acute therapies growth remains modest for the quarter

Therapy-wise, strong performance in Cardiac, Derma, Urology, and Anti-diabetic therapies has contributed to better growth compared to the IPM for the quarter. However, to some extent, the overall IPM growth was impacted by moderate growth in Respiratory/Anti-infective/Gynae therapy. Chronic therapies (39% of IPM) grew 10% YoY while acute therapies grew 6% (61% of IPM) for 12M ending Nov’24.

LPC/TRP/DRRD to deliver robust YoY sales growth in the DF segment for 3QFY25E

Company-wise, in the large cap space, we expect LPC/TRP/DRRD to deliver sales growth of 14.8%/13%/12.5% YoY, respectively, backed by new launches, market share gains, and improving MR productivity. We expect GNP to report 4.5x YoY growth each due to the restructuring and rationalization of inventory. We forecast ERIS to deliver 59% YoY growth in DF sales, largely due to the integration of acquired brands.

US generics: Reduced traction in select products to result in a downtrend for YoY growth in 3QFY25

US growth rate to moderate after eight quarters

For our coverage companies, we expect 5.3% YoY growth in US sales, reaching USD2.4b for the quarter. After eight quarters of double-digit growth, the US business may witness a moderation in YoY growth, led by limited launches and increased competition in base products. Select companies are expected to benefit from niche products such as g-Revlimid (ZYDUSLIF), g-Spiriva (LPC), and g-mirabegron (LPC/ZYDUSLIF). The price erosion in the base portfolio remained limited to the mid-single digits for 3QFY25.

Limited competition products to drive growth for select companies

Company-wise, ZYDUSLIF/LPC/SUNP are expected to deliver 30.8%/14%/10.5% YoY growth for the quarter. US sales of ALKEM/TRP/CIPLA are expected to decline 12%/6.1%/4.3% YoY, respectively, for the quarter due to a lack of new approvals/launches and regulatory issues at their facilities.

Regulatory risks pose a threat to ANDA approvals

During the quarter, four facilities were inspected by the USFDA for our coverage companies. At the industry level, total approvals stood at 186, of which our coverage companies accounted for 23%. There were 43 approvals for companies under our coverage during 3QFY25, which is below the two-year average of 53 approvals. However, with the rise in regulatory risk and an increased focus on niche products, the overall pace of ANDA approvals has reduced.

Tailwinds in the CDMO industry

The prospects for Indian CDMO companies are improving due to a rise in proposals from innovative pharmaceutical companies to non-Chinese companies. In particular, compared to commercial manufacturing services, the transition of discovery/development services may occur more rapidly. Additionally, the recent decline in rates is expected to enable more funding for clinical development initiatives, improving the outlook for CDMO companies.

Hospitals: Bed addition/enhanced efficiency to drive 3QFY25 performance

* For hospitals under our coverage, we expect 14.6% revenue growth to INR84.4b for 3QFY25. The overall performance is expected to be driven by an addition in operational beds on a YoY basis from 14,768 beds in 3QFY24 to 15,818 in 3QFY25. We expect 17%/19% EBITDA/PAT YoY growth on an aggregate basis for the quarter.

* The overall occupancy is expected to remain stable on a YoY basis. Additionally, the realization per patient (ARPOB) growth is expected to be flat on an aggregate basis. However, additional beds across hospitals, improved profitability of Healthco (APHS), and better case mix/payor mix are expected to maintain growth momentum in BEITDA/earnings of companies under our coverage.

* Hospitals under our coverage are progressing with bed additions through both organic/inorganic means. In addition to the ongoing capex, MAX has added 800 beds through the Jaypee Healthcare acquisition in this quarter. APHS’s efforts are underway to add 1,860 beds in FY26 post the refurbishment of the acquired Pune/Gurgaon hospitals. Medanta won a bid from the government to build a 500-bed hospital at Oshiwara, Mumbai, this quarter.

* We expect APHS to deliver 12.4%/23.4%/40.7% YoY growth in sales/EBITDA/PAT for 3QFY25. MEDANTA is expected to deliver moderate performance with sales/EBITDA/PAT growth of 5%/-2.8%/4.8% YoY. MAXHEALT is also expected to deliver sustained performance with sales/EBITDA/PAT witnessing 26%/18%/8.7% YoY growth, respectively.

IPCA/DIVI to outperform in the healthcare pack

* In 2QFY25, we expect IPCA/DIVI to deliver 77%/49% earnings growth YoY, respectively. This growth is driven by strong traction in the DF business and the integration of the Unichem business (IPCA), along with a low base/strong CS growth for DIVI. We project DRRD/GLAND to report an earnings decline of 13.7%/11.5% YoY.

* We expect LAURUS to post earnings growth of ~2.7x YoY, driven by the low base of the previous year. Additionally, TRP is expected to post earnings growth of ~32% for the quarter.

* We expect APHS/MAXHEALTH/MEDANTA to register an earnings growth of 40.7%/8.7%/4.8%, respectively, due to: a) operational profit of Healthco (APHS), b) optimizing payor mix/case mix (MAXHEALTH), and c) revival in the growth of the Lucknow hospital.

* During the quarter, we have increased our estimates for MANKIND by 4.8%/- 3.7/3.1 for FY25/FY26/FY27, while we have cut our estimates by 16.6%/9.7%/5.5 for Piramal Pharma, 13.4%/12.4%/8.5% for Gland, and 23%/5%/4% for Laurus for FY25/FY26/FY27 estimates.

* Top Ideas: Sun Pharma (specialty/branded generics led play), Mankind Pharma (differentiator in DF), Max Healthcare (strong executor in the hospital space), and IPCA (Recovery in the US and turnaround of Unichem).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412