ICICI Securities posts preview of Q1FY18 result

ICICI Securities has released Q1FY18 result where it expects pharma companies under its coverage to report weak set of results for the quarter ended Jun’17. This is due to most companies witnessing ~10 per cent decline in revenue from domestic formulations which got impacted by GST implementation. Inventory de-stocking would have impacted primary sales for 20-25 days during the quarter.

According to the report, the impact on EBITDA and PAT would be higher as India is one of the most profitable businesses and operating expenses would have continued. Further, increased competition and pricing pressure would impact growth in some US focussed companies.

ICICI Securities expects weak results from: 1) Sun Pharma due to high base with exclusivity of generic Gleevec and continued pricing pressure in Taro portfolio, 2) Alkem Labs due to high dependence in India business, and 3) Lupin on competition in generic Fortamet and authorised generic launch in Glumetza. Overall, we expect the companies to report 1.1 per cent revenue and 23.5 per cent PAT decline Y-o-Y with EBITDA margin drop of 360bps.

The Indian pharma market witnessed moderate growth, impacted by destocking before the implementation of GST in July’17, at average 7.7 per cent in value terms during the quarter (source: AWACS). This impact by GST is temporary in nature and normal domestic performance is expected to revert within few months. Secondary sales clearly indicate the value decline of 23.9 per cent and 4.6 per cent Y-o-Y and 14.9 per cent and 5.5 per cent QoQ in portfolio under FDC and NLEM, respectively, due to FDC ban and price revision, respectively.

The report also mentions that Q1FY18 numbers will show moderate growth decline in US sales. Glenmark would gain from continued exclusivity of generic Zetia and Shilpa Medicare from launch of new products in the US. Sun Pharma is expected to face pricing pressure in Taro portfolio and base effect of exclusivity sales of generic Gleevec. Cadila would benefit from recent product approvals from Moraiya facility.

The key factors to observe in Q1FY18 numbers and management commentary would be: i) GST impact on the domestic business and its normalisation, ii) update on US FDA issues plaguing several companies, iii) continued pricing erosion in US business with consolidation of the buyers and increased competition, and iv) growth in emerging markets after stabilisation of currencies and any working capital issues in these markets.