Pharmaceuticals: 1QFY26 review: CRDMO, hospitals & diagnostics lead the way by Kotak Institutional Equities
1QFY26 review: CRDMO, hospitals & diagnostics lead the way
CRDMO, hospitals and diagnostics companies reported fine results in 1QFY26 amid largely steady US and domestic prints. The net outcome was positive for the broader space, with most companies surpassing our EBITDA estimates. In 2QFY26, we expect traction in ex-gRevlimid US formulations and CRDMO to continue, with yoy India growth improving marginally. For hospitals, ARPOB growth was healthy in 1Q, with all eyes on the upcoming expansion spree. Diagnostics players continued to witness a B2C-led uptick. While we like SUNP, CIPLA, LPC, Mankind, Emcure, Syngene and PPL in Pharma, within Health Care Services, APHS and DLPL are our preferred picks.
Pharma: Steady US; slightly sluggish India; CRDMO in a healthy shape
Overall, performance of our pharma coverage in 1QFY26 was characterized by continued stability in US generics pricing, along with traction across most other markets, with slightly sluggish growth in India being the only chagrin. While overall US sales for our coverage declined 2% qoq ((-)3% yoy), primarily led by lower gRevlimid sales, base business traction continued for most firms, led by volume growth in existing products and benefit from recent launches. Within India, organic sales for our coverage grew 6-14% yoy in a seasonally weak quarter. For generic API companies, lumpiness and pricing pressure drove a 2% yoy ((-)18% qoq) decline in cumulative API sales in 1QFY26. Within CRDMO, except for PIRPHARM, wherein revenues were impacted due to inventory destocking, all companies reported yoy growth in 1QFY26. On an overall basis, our pharma coverage reported ~11% yoy sales growth (flat qoq) in 1QFY26. On the operating front, our coverage reported ~14% yoy growth (flat qoq) in cumulative EBITDA, with 70 bps yoy improvement in EBITDA margins. While SAI LIFE, LAURUS and LPC delivered the highest EBITDA beats on KIE estimates, the largest misses were for PIRPHARM and CONCORDB.
Hospitals: Case mix-led ARPOB uptick; all eyes on the expansion spree
Despite seasonal weakness, most India-based hospitals witnessed a sequential uptick in 1QFY26. On a yoy basis, while lower international patient footfalls from Bangladesh continued to impact revenues (this would be the last quarter, as from 2QFY26, the impact would be on the base), ARPOB improved 4-15% yoy, primarily led by a reduction in ALOS and an improvement in the specialty/payor mix. Cumulative sales and EBITDA for India-based hospitals within our coverage grew 16% yoy each in 1QFY26. While APHS delivered the highest EBITDA beat, KIMS and NARH missed KIE estimates.
Diagnostics: Double-digit yoy sales growth; B2C traction continues
Diagnostics companies within our coverage reported healthy 11-13% yoy organic sales growth in 1QFY26, led by 8-10% yoy growth in volumes and a higher wellness mix. For both DLPL and METROHL, traction in B2C continued, with most online players curbing their discounting and marketing spends. Cumulative EBITDA for our diagnostics coverage grew 13% yoy, with both DLPL and METROHL delivering an EBITDA beat on KIE estimates
Above views are of the author and not of the website kindly read disclaimer
