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DF/hospitals on a robust growth path; aggregate exports on a weaker footing

* Following a subdued revenue growth of 10.8% YoY in FY26 (excluding hospitals), our coverage universe is expected to deliver better growth in 2QFY27, building on the robust performance reported in 1QFY27. Aggregate revenue/EBITDA is likely to rise ~13% YoY. However, PAT is expected to remain under pressure, with estimated growth of 5.8% YoY, due to higher finance costs and increased depreciation following acquisitions.

* The sustained improvement in domestic formulation growth prospects is expected to be partially offset by lower aggregate US generics sales among companies under our coverage. Having said this, the INR depreciation of 8.5% against the USD and 5% depreciation against the EUR is expected to provide some respite to export revenue and profitability. The ongoing political turmoil in the Middle East is expected to increase the logistics/supply chain costs. Vessel availability is increasingly becoming a challenge for pharmaceutical companies with exposure to both import and exports

* Among healthcare services, hospitals are likely to maintain their outperformance, with ~25% YoY revenue growth, driven by ongoing capacity additions and healthy improvement in ARPOB. However, margins may remain under pressure for select hospitals owing to the ramp-up of newly commissioned facilities.

DF: Momentum to be led by acute recovery and resilient chronic demand

* Coverage companies to sustain growth: For our coverage universe, we expect aggregate DF segment sales to grow 20.4% YoY to INR312b in 2QFY27. The DF segment is likely to deliver 13.6% YoY growth ex-GNP/TRP. Following a modest 9% YoY growth in 2QFY26, the DF market has witnessed strong momentum, and we expect YoY growth to accelerate to double digits for the fourth consecutive quarter, supported by a recovery in acute therapies and sustained strength in chronic segments. Our coverage companies are likely to broadly track industry growth, aided by continued product launches, pricing actions and an increasing portfolio mix towards high-growth chronic therapies.

* Chronic therapies resilient; acute recovery gains traction: Acute therapies exhibited a meaningful recovery, with growth improving to 10% YoY while chronic therapies delivered strong momentum of 16% YoY in MAT Aug’26. Robust momentum in cardiac, anti-diabetic, vitamins, minerals & nutrients (VMN) continued to outperform the IPM, although overall IPM growth remained constrained partly by softer trends in anti-infectives and respiratory therapies.

* DRRD/ZYDUSLIF/AJP/LPC to lead DF growth in 2QFY27: We expect DRRD/ZYDUSLIF/AJP/LPC to deliver robust 15% YoY growth in DF segment in 2QFY27. DRRD is expected to post broad-based growth across most therapy areas except respiratory. Superior execution supported by product launches and better MR productivity is expected to drive outperformance for these companies among our coverage pack. Optically, GNP/TRP is expected to report 7x/ 48% YoY growth in the DF segment due to the low base for GNP and the consolidation of JB Pharma for TRP. Emcure is expected to deliver an improvement in YoY growth for 2QFY27.

* ALPM/ERIS expected to underperform in 2QFY27: We expect ALPM/ERIS to underperform peers in 2QFY27, with DF sales growth of 6.8%/10.4% YoY owing to muted performance across key therapies in the acute and chronic segments.

LAURUS/Rubicon/GLAND to outperform in the healthcare pack

* In 2QFY27, we expect LAURUS/GLAND/Rubicon to deliver EBITDA growth of 53%/42%/38% YoY and PAT YoY growth of 65%/58%/57%.

* LAURUS/GLAND/Rubicon are expected to sustain healthy earnings momentum due to improved sales growth and better operating leverage. For TRP/GNP, EBITDA growth is likely to be driven by continued strength in the DF business, supported by healthy growth across chronic segments. Additionally, TRP would benefit from the consolidation and integration of JB Pharma. For RUBICON, new product launches, continued market share gains in the base portfolio, and increasing contribution from specialty and differentiated products are expected to support strong EBITDA growth.

* Superior execution is expected to drive 21%/32% YoY growth in EBITDA/PAT for Emcure in 2QFY27

* DRRD/CIPLA are likely to report a YoY decline of 44%/30% in EBITDA owing to intensifying competition across niche products, including g-Revlimid, while LPC is likely to witness an 11% YoY decline due to competition in Tolvaptan/ Mirabegron. This will result in increased pricing pressure and lower profitability, which is expected to weigh on earnings.

* Our top ideas: Mankind Pharma (superior execution), Rubicon (R&D-led growth), Emcure (growth revival in play), and Medanta (Noida ramp-up).

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