Watch out for US recovery, new productsRobust growth in profits despite modest rise in revenues characterised the performance of the Indian pharma sector for the latest quarter ended

The analysis of aggregate results of leading 18 pharma companies reveals an 83% Y-o-Y rise in net profit, while net sales grew at a modest rate of 10%. Savings on raw materials, cost management, and absence of forex losses have primarily resulted in doubling of profits over the previous year.

Watch out for US recovery, new productsThis has also led to expansion of operating and net profit margins. The growth in revenues has been lowest ever, as some leading companies like Ranbaxy and Sun Pharma reported flat growth, as their revenues from the US business have been affected due to the regulatory actions by US FDA. The sector has managed to log a robust Y-o-Y performance in terms of profits for the quarter ended September 2009 when compared to the performance in the preceding quarters.

However, a disappointing sign is that the aggregate revenue growth of pharma companies has been on a steady decline since past four preceding quarters.

Among leading companies, Dr Reddy’s Labs (DRL) and Cipla posted robust jump in earnings. DRL, Sun Pharma and Ranbaxy pleased the Street posting betterthan-expected results. DRL and Ranbaxy have started showing signs of stability.

However, in case of Ranbaxy, pending issues with US FDA still keep its future performance uncertain. Among mid-sized companies, Lupin and Cadila Healthcare reported good numbers — continuing the momentum in their earnings growth.

Among players in the contract research and manufacturing services business (CRAMS), almost all players reported disappointed results. Jubilant Organsys, the largest CRAMS player, reported flat sales on account of poor performance of its chemical business. Dishman Pharma, Divi’s Laboratories and Piramal Healthcare have witnessed a hit on their revenues on account of poor performance in their CRAMS business.

For many companies, subdued growth in revenues from the US has been compensated, to an extent, by growth registered in emerging markets of Eastern Europe, LatAm and CIS countries. Companies like Ranbaxy, Piramal Healthcare and Cipla have also gained from good growth shown by the over-the-counter branded consumer healthcare products in the domestic market.

Savings on raw material costs due to high base year effect will vanish from the current quarter onwards. This will remove the extra growth in profits commanded by companies during last few quarters. Going forward, recovery in the business conditions in the US, stance of the US FDA towards compliance related issues and company’s product pipeline are the factors to watch out for.