Pharma sector profits in June to rise

The rupee's appreciation of 6.4 per cent against the dollar and 12 per cent against the euro is likely to hurt the first-quarter performance of the pharmaceutical sector, indicate a results' preview by broking houses.

Alembic, Aurobindo Pharma, Dishman Pharma and Dr Reddy's Labs are poised to report dismal performance in the June quarter. Biocon, Cadila Healthcare, Divi's Labs, Lupin, Piramal Healthcare, Ranbaxy and Sun Pharma should produce healthy results. Cipla and Glaxo Pharma are scheduled for modest performance.

The 19 pharma firms are likely to show 60 per cent-plus growth in net profit in the quarter, considerably slower than the more than 100 per cent growth in profit registered by these firms during the preceding three quarters of the financial year 2010. Overall performance would have been dismal if one excluded Ranbaxy, Sun Pharma, Piramal Healthcare and Glenmark from the sample. Aggregate revenue growth for the sector continues to be modest, at 12-15 per cent, the same as the previous four quarters.

Among the pharma biggies, Sun Pharma is expected to post strong sales and profit growth, driven by its US and domestic formulation businesses. The sales are expected to rise by 35 per cent. Net profit is likely to go up by 70-90 per cent, say a few broking housesl; the others put it at 120-190 per cent. Strong domestic and export formulation sales are expected to be revenue drivers, while net profit is likely to come from exclusivity sales and recovery in the domestic business.

Nimish Desai and Amit Shah of Motilal Oswal expect Ranbaxy's sales to decline marginally, mainly due to subdued branded formulation markets such as the Asia Pacific and Middle East. The US Food and Drug Regulation issues are yet to be resolved, so revenues from the US are likely to decline by about nine per cent. Analysts from Angel Broking say Ranbaxy should post modest sales growth, driven by its US business. However, the company is likely to report mark to market losses (writing down assets to reflect current value) on its forex hedges, resulting in modest net profit of Rs 80 crore.

Dr Reddy's sales were expected to grow 4-8 per cent or decline by 2-8 per cent, going by different analysts. Recurring sales are expected to grow by 6-10 per cent, driven by the US and India formulation segments. The company is expected to show a decline in net profit, due to the cost incurred for retrenchment of the sales force and closure of its Atlanta facility.

Lupin is expected to report sales growth of between 25 and 35 per cent, while net profit growth is a minimum of 40 per cent. The growth driver for the company is the domestic formulation business and the advanced markets of US, Europe and Japan. Suprax and Antara will likely drive the US branded business. Higher ANDA (abbreviated new drug application) launches will drive the US generics business. The operating margins should see a positive impact from a full quarter of Lotrel sales, the launch of a low-competition product, and operating leverage.

Cipla's sales are expected to grow 10-15 per cent, based on an estimate of eight broking houses. Exports are likely to report muted growth due to conscious reduction in the low-margin business. The rupee's appreciation will temper sales growth and higher staff cost will hit operating margins by over 100 basis points. The net profit is expected to move up by around 10 per cent.