Pharma export could be impacted for disruptions due to COVID-19 in this quarter
Alembic Pharma has reported a better-than expected earnings in the just concluded quarter. The company’s revenue grew 30 percent against the street estimate of a 20 percent growth. The revenue growth was led by a strong performance by its US generics segment (80 percent), and India and rest of the world business growing better than the previous nine months of the financial year.
Margins too improved to by 25 percent, with a profit surge of over 80 percent due to better performance in revenue generation and operations.
In this quarter, overall pharma export could be impacted due to the disruptions on account of COVID-19 outbreak. Domestic business is likely to be insulated from the shock. Indian companies could grow anywhere between 9-12 percent compared to the growth of over 9 percent in the quarter gone by.
According to CLSA, companies such as Abbott India and IPCA should see the strongest growth in the sector under their coverage due to higher contribution from India.
The US market will continue to be impacted by company specific issues such as regulatory overhangs on plants and slower approvals. However, according to analysts, key overhangs such as price erosion has stabilised around 5 percent which will help stabilise quarter-on-quarter performance.
US earnings will also continue to be impacted due to earnings from specific drugs.
CLSA says Lupin could see a QoQ increase in revenue due to its increased market share in key drugs such as thyroid drug Levothyroxine. Antique said that companies such as Cadila would benefit from Losartan, the drug used for hypertension, and Cipla after an initial erosion has held on to market share in key drugs such as Volatren (anti-inflammatory), Pulmicort (respiratory) and Sensipar generic (kidney disease).
Margins will be watched out for the likes of Dr Reddys which have initiated cost cutting initiatives across the company. Other companies margins including Dr Reddys will depend on factors such as the US market performance and impact of currency movements in Q4.
Commentaries have always been keenly watched out for pharma companies.
This will have special significance despite the COVID-19 crisis. The street will watch out for answers on whether the companies are indeed witnessing expedited approvals of drugs and plants and the status on API supplies. Stock specific, Cipla will be quizzed on its recent Albuterol inhaler approval, which received approval 3-4 quarters earlier than anticipated and also their warning letter on Goa facility.
Updates on regulatory overhangs faced by other companies such as Lupin, Sun Pharma, Torrent Pharma and Cadila will be watched out for.
The street will also be keen to see the impact of COVID-19 and lockdown on healthcare stocks such as hospitals and diagnostic companies.
Some expect earnings impact to be limited in Q4 but more pronounced impact in Q1FY21. Hospitals will also be impacted due to decline in international patients that comprise up to 14 percent of some hospital revenues due to travel restrictions.
Hospital companies such as Narayana, according to analysts, could see a 3 percent to 4 percent decline in revenue due to a temporary shutdown of their hospital in the Caribbean on account of COVID-19.
While Apollo hospital’s business could be weak but the pharmacy business is likely to grow 8-10 percent YoY. Diagnostic companies are likely to report a modest 3-7 percent growth. Margins for both diagnostic and hospital companies are likely to decline 200-300 bps.