Pharma sector likely to report weak numbers in Q4

The troubled pharma sector is expected to report weak Q4FY18 numbers, with PAT likely to decline by 9 per cent (year-on-year) and appreciation in rupee may put pressure on realisations, industry analysts said.

"We estimate the pharma sector to report weak Q4FY18 numbers - while revenue is likely to grow at 3 per cent y-o-y, PAT is expected to decline 9 per cent y-o-y. We expect US revenue to dip 2 per cent y-o-y in constant currency (cc) - five consecutive quarters of decline - led by sustained pricing pressure due to customer consolidation and rise in competition," Edelweiss research analyst Deepak Malik told PTI here.

The rupee appreciation of 4 per cent y-o-y against the USD will put further pressure on realisations. However, this is likely to be partly offset by rupee depreciation against the Euro/Rand/Yen by 11 per cent, 6 per cent and 1 per cent y-o-y, Malik said.

We forecast domestic sales to grow 11 per cent y-o-y on a low base, he said.

While pricing controls keep the operating environment tough in the domestic market, pharma companies with strong brands in the OTC (over the counter) category are better placed to ride the slowdown.

Besides, earning growth also affected by waning new products approvals by USFDA (US Food and Drug Administration), which declined drastically during Q4FY18 to 109 from 249 in Q3FY18 due to additional documentation requirements for elemental impurities.

On the regulatory front, USFDA inspections of Cadila's Moraiya unit in Ahmedabad and Natco's Mekaguda unit were favourable, while Aurobindo's Hyderabad unit-IV, Cipla's Goa, Dr Reddy's Telangana and Sun Pharma's Halol units received observations, Malik added.

Indian pharmaceutical sector is estimated to account for 3.1 – 3.6 per cent of the global pharmaceutical industry in value terms and 10 per cent in volume terms. It is expected to grow to USD 100 billion by 2025. The market is expected to grow to USD 55 billion by 2020, thereby emerging as the sixth largest pharmaceutical market globally by absolute size.

Branded generics dominate the pharmaceuticals market, constituting nearly 80 per cent of the market share in terms of revenues.

The country's pharmaceutical exports stood at USD 16.8 billion in 2016-17 and are expected to grow by 30 per cent over the next three years to reach USD 20 billion by 2020, according to the Pharmaceuticals Export Promotion Council of India (Pharmexcil).