The performance of companies in pharma sector during the third quarter of FY09 is likely to be similar to that witnessed in the second quarter ended September 2008. The industry revenues are expected to increase by more than 20% y-o-y, while the profit margins may come under pressure.
The easing off of raw material prices may help to boost margins, but the depreciation of rupee by around 4% during the quarter is likely to create more harm in the form of forex losses than being helpful in increasing the value of export receivables.
Average estimates of leading seven pharma companies by broking analysts and ETIG indicate 11% increase in net profits during the quarter ended December 2008, against the corresponding quarter in the previous year. Similarly, revenues are expected to increase by 22% y-o-y. The same may be true for the industry as a whole, exception being MNCs whose performance is likely to be characterised by single-digit growth.
The profitability of pharma companies that have FCCBs and foreign borrowings in their books would be impacted for the December quarter like earlier. Profits of companies like Ranbaxy, Wockhardt, Ipca Labs, Orchid Chemicals and Cipla are likely to be unfavourably impacted due to the adverse rupee movement. The full impact of ban on Ranbaxy by US FDA for certain drugs is expected to be visible in the December quarter.
Sun Pharma, with no FCCBs or aggressive hedging, is likely to yet again lead the pack of the best performers followed by Lupin and Piramal Healthcare. Dr Reddy’s is also likely to log a better performance due to the exclusivity enjoyed by its generic version of the drug Imitrex and recovery in the performance of its German subsidiary —Betapharm.
While the pricing pressures in markets of Europe and North America continued, the quarter also witnessed increase in US FDA’s scrutiny of the compliance followed by pharma companies. Many Indian companies are now facing increased inspection and inquiries by the healthcare agency.
On the positive side, the crude oil prices dropped sharply during the quarter and the prices of active pharmaceutical ingredients (API) also fell down due to increased supply from China after the Olympics.