Pharmaceuticals Sector Update : Q2FY27E Quarterly Result Preview by Choice Institutional Equities Ltd
Q2FY27E: Launch Momentum and Domestic Growth Should Cushion US Pricing Pressure, Margin Headwinds Remain Temporary
We expect most companies in our coverage universe to deliver a healthy YoY revenue growth, supported by continued launch scale-up, strong domestic growth and sustained EM momentum. These should offset ongoing pricing pressure in the US. EBITDA margin is projected to remain under pressure for select companies due to LOEs and higher R&D investment to build launch momentum. We view this as a transitory headwind, with pipeline build-up across higher-value segments, such as biosimilars, peptides and complex generics supporting margin recovery over time.
Complex Generics Driving a Structural Mix Upgrade
Complex generics continue to gain traction, with more companies shifting their portfolios towards higher-value products. Notable Q2FY27 launches include Ranibizumab (Opthalmology), Tofacitinib (Immunology), Rituximab (Oncology) and Abatacept (Immunology). We believe this shift towards higher-margin, value-added products is structurally positive for the sector. The transition should improve the quality of growth and support sustained margin expansion over the medium term.
Semaglutide Opportunity Shifts from Hype to Execution
We believe the India Semaglutide opportunity will be shaped more by execution than price competition or market hype. Industry data is increasingly validating our day-one view which established antidiabetic franchises will be key to sustaining share. SUNP has consistently ranked among the top five players over the past six months. We remain positive on its positioning as the Semaglutide market matures.
Domestic API Manufacturing Gains Strategic Importance
Recent volatility in global API supply has reinforced the strategic importance of backward integration and PLI-driven capacity expansion. While India continues to rely on imports for several key intermediates, sustained investments in domestic manufacturing are anticipated to gradually strengthen supply security, improve costcompetitiveness and reduce structural import dependence in the medium term.
US Tariffs to have Negligible Impact on Indian Pharma
The US has imposed a 100% tariff on specified patented pharma imports, while qualifying specialty drugs, including orphan drugs, fertility treatments, cell and gene therapies and ADCs, are exempt for eligible countries including India. We continue to expect a limited tariff impact on Indian pharma, with generics currently exempt and the latest specialtydrug exemptions reinforcing this view. We estimate the overall earnings impact at no more than ~100 bps, if any. The key monitorable remains any future expansion of tariffs to generics.
Sector View
Despite near-term headwinds, we maintain a positive outlook on the sector, supported by a robust pipeline of launches, an ongoing shift towards complex generics and sustained growth in Biosimilars and CDMO segments, which together underpin long-term earnings visibility
High-conviction Investment Ideas
Our high-conviction ideas are – SUNP and GRAN.
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