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Pharma companies under our coverage are expected to report moderate EBITDA growth of 3% YoY (2% QoQ) in Q2FY27, mainly due to the high base in the US business. Strong domestic growth and INR depreciation should partly offset the US weakness. Domestic formulations should remain healthy, supported by continued growth in chronic therapies and a recovery in acute demand. Generic semaglutide should support domestic growth, with its ramp-up and competitive intensity being key monitorables. In the US, lower gRevlimid sales and continued price erosion in select products are likely to weigh on growth. However, companies with exposure to complex generics, specialty products and limited-competition launches should continue to perform better. Overall, we remain constructive on the sector, with SUNP, TRP, AJP and ANTHEM as our top picks.

TRP, ARBP and DIVI to lead EBITDA growth:

We expect strong YoY EBITDA growth from TRP (49%), ARBP (20%) and DIVI (20%). TRP is expected to deliver such strong growth, aided by the consolidation of JBCP and steady performance across the base business. Further, we believe ARBP EBIDTA growth should benefit from Lannett consolidation, reduced losses from China and ramp-up of its PenG facility. Healthy revenue growth aided by currency tailwinds and good CDMO performance should support DIVI. LPC’s performance would remain weak due to competition in select products in the US market. SUNP is likely to report ~13% YoY revenue growth, supported by the traction in its specialty and branded formulations business

AJP and IPCA to drive EBITDA growth in Q2FY27:

We estimate EBITDA growth of ~20% and ~19% for AJP and IPCA respectively. AJP's EBITDA is expected to improve, supported by strong revenue growth across branded generic segment. IPCA is likely to benefit from a recovery in its core business, while UNICHEM’s profitability is expected to remain steady YoY. ERIS is likely to report moderate 7% YoY EBITDA growth.

Margin pressure to persist for DRRD, LPC, CIPLA and ZYDUSLIF:

We expect a sharp YoY decline in EBITDA for these companies, driven by a high US base and an unfavorable product mix.

ANTHEM, SUNP and DIVI to see margin expansion:

These companies are expected to report YoY margin expansion, supported by a better product mix and currency tailwinds. In contrast, margins for CIPLA, ZYDUSLIF, LPC and DRRD are likely to remain under pressure due to lower US sale

US business sees high-base pressure:

US revenue across our coverage universe is expected to post YoY decline in constant currency, due to the high base of gRevlimid sales. Excluding gRevlimid, the underlying business is likely to deliver steady growth. For ARBP, US revenue is expected to improve QoQ, aided by lannett acquisition. CIPLA and ZYDUSLIF are likely to see steady QoQ sales. LPC to witness decline both QoQ and YoY, on the back of competition from gTolvaptan.

Healthcare Index outperforms Sensex; favorable outlook:

The Healthcare Index outperformed the Sensex for another quarter, by ~10%. The sector continues to benefit from stable pricing, steady domestic demand, INR depreciation and relatively stable input costs. Going ahead, earnings growth should improve gradually, led by strong domestic formulations, higher contribution from US specialty and differentiated products, and better operating leverage. Companies with exposure to complex generics and limited-competition products should continue to do better in the US. Overall, we remain positive on the sector, with a preference for companies with strong India businesses and good US growth visibility. Our top picks are SUNP, TRP, AJP and ANTHEM.

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