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Informist, Friday, Jul. 11, 2025

 

By Narayana Krishna

 

HYDERABAD - The pharmaceutical sector is likely to have hit a rough patch in the June quarter in terms of their sales and pricing power, particularly in the US. Higher exposure to US generics would have likely spelt trouble for Indian pharma companies. In contrast, the pharma demand is seen to have been steady in the domestic market, according to analysts. 

 

The profitability of pharma companies would also have likely taken a hit on the back of weak sales and price erosion. The steady domestic pharma sales, according to analysts, will not reflect in the year-on-year earnings growth due to the high base effect from year-ago generic launches.

 

The hospitals and healthcare industry in India may have escaped the troubles of international sales-dependent pharma companies due to core hospital and pharmacy businesses in the country holding ground. The consolidation effect in the case of some players will also be favourable for the sector.

 

The pharmaceutical and healthcare companies in the Nifty 200 index are expected to see a slowdown in earnings growth in the June quarter, mainly due to a hit to their US operations. The cumulative net profit of 13 companies in the index is likely to grow only 6.5% year-on-year this quarter, according to earnings estimates by seven brokerages. The projection, if it turns out to be true, will mean the net profit growth will be the slowest since the December quarter of 2022-23 (Apr-Mar). The projection excludes Glenmark Pharmaceuticals as it was added to the Nifty 200 index only recently. Including Glenmark Pharma, the net profit growth of the companies is seen at 6.6%. 

 

The sector's top-line growth in the June quarter is seen largely to have been steady, with the cumulative sales of the companies excluding Glenmark expected to rise 10.8% on year. Including Glenmark, the revenue growth is expected to be the same. The estimated 10.8% revenue growth is similar to the actual revenue growth of the June quarter last year, but slightly lower than the 13% rise in the March quarter.

Sequentially, net profit of the 14 companies is expected to rise 13.5% and sales are seen 3% higher. Most brokerages expect weak year-on-year earnings performance for large companies that are dependent on the US due to pricing erosion and a decline in sales of some key products. Since September 2022, pharmaceutical companies have launched the generic version of the cancer drug Revlimid in the US one after another, which has helped them drive higher earnings growth. However, the base effect has become a key reason for the slower growth seen over the last three quarters, as the impact of this drug faded due to price erosion and declining sales.

The companies focused on generic pharmaceutical products are likely to report weak results for the June quarter. At the same time, companies with larger exposure to the Indian market may report robust sales growth, according to brokerages.

 

MUTED US GROWTH 

Companies such as Dr Reddy's Laboratories Ltd., Sun Pharmaceutical Industries Ltd., Cipla Ltd., and Aurobindo Pharma Ltd. are likely to report weak US performance due to the high base of the generic cancer drug Revlimid, which saw significant price erosion during the June quarter, according to brokerage reports. The US accounts for 45–50% of the total generic sales of these companies.

 

The generic drug Revlimid, with annual sales of $3 billion in the US, contributed significant revenue and margins to these companies over the last several quarters. At least eight companies have entered the market with their generic versions, creating intense competition and leading to price erosion. All the companies that benefited from Revlimid may face margin pressure this quarter, analysts said.

 

However, companies such as Lupin Ltd. may post double-digit revenue growth in the US, aided by one-off products such as the Tolvaptan launch and sustained market share in generic Spiriva. Zydus Lifesciences Ltd. is expected to benefit from the contribution of generic Mybetriq in the US, offsetting some of the impact from Revlimid, according to analysts.

 

According to Centrum Broking, Cipla's US sales for June are expected to decline 12% on year to $220 million, largely due to pricing pressure on generic Revlimid. Also, Dr Reddy's US sales are expected to decline 11% on year to $413 mln led by Revlimid issues, but the impact may be offset by new launches.

 

Sun Pharma is likely to deliver a modest 1% year-on-year growth led by strong growth in the speciality portfolio, offset by a decline in the generics portfolio, Centrum Broking said. Torrent Pharma is expected to witness sales growth of 7% year-on-year on account of increased traction and new launches.

 

Divi's Laboratories Ltd., which is focused on active pharmaceuticals and speciality chemicals, may continue its robust earnings performance on a year-on-year basis. The company, known for its custom synthesis expertise, may continue to report robust sales and margin performance for the June quarter, analysts said.

 

INDIA GROWTH

Analysts are projecting the Indian pharmaceutical market to see a double-digit growth for the June quarter, led by robust sales in cardiac, respiratory and central nervous system and oncology therapies. Companies such as Dr Reddy's, Cipla, Lupin, Sun Pharma, Zydus, Torrent Pharma Ltd., and Mankind Pharma Ltd. are likely to report double-digit growth for the June quarter, according to the reports.

 

Cipla, with a 45% share from domestic sales, is likely to continue to report growth-led market share gains in respiratory and chronic therapies segments. Along with consumer wellness products, the company is also present in the urology and oncology segments in India, which may aid the growth.

 

"We expect our coverage universe to see 11% YoY growth in India business, led by mergers and traction in the speciality, chronic and CNS segments. On the other hand, muted growth in anti-infectives could impact the overall growth momentum," HDFC Securities said.

 

MARGIN PRESSURE

Prabhudas Lilladher projects single-digit earnings before interest, tax, depreciation and amortisation growth across the pharma sector in the June quarter, largely due to a high base in the US business. While the US segment is expected to show a year-on-year decline, growth excluding generic Revlimid remains positive, the brokerage said. Companies such as Lupin and Divi's Labs are expected to post robust EBITDA growth of 43.2% and 21.6% on year, respectively, driven by exclusivity and improved product mix.

 

Conversely, Cipla, Dr Reddy's, and Zydus Lifesciences may report EBITDA declines due to pricing pressure in Revlimid. EBITDA margins are seen improving for Lupin, Divi's, and Torrent Pharma, while Sun Pharma's margins could decline due to elevated operating expenses.

 

HDFC Securities expects the June quarter margins of pharmaceutical sector companies under its coverage to remain under pressure in the Apr–Jun quarter. While gross margins may see a modest 5 basis points expansion year-on-year, gains from exclusivity-based launches are likely to be offset by rising input costs and sustained pricing erosion in the US market, especially in the base business and generic Revlimid. Additionally, higher research and development spending is expected to weigh on operating profitability, keeping EBITDA margins subdued, HDFC Securities said.

 

Centrum Broking projects EBITDA margins to remain largely flat year-on-year at 26.6% for its coverage universe. The brokerage attributes the lack of improvement to higher operational costs, although the impact is partially offset by rising contributions from high-margin, niche product launches in the US generics market. Among key companies, Sun Pharma and Cipla are likely to see EBITDA margin contractions of 100 bps and 70 bps, respectively, while JB Chemicals may register a 190 bps margin expansion. Margins for Torrent and Dr Reddy's are expected to stay broadly stable.

 

In hospitals and healthcare, Apollo Hospitals Enterprise Ltd. is likely to report nearly a 21% year-on-year growth in net profit, while sales are projected to see a 12.3% year-on-year growth for the June quarter. Another major player in the sector, Max Healthcare Institute Ltd., is expected to report a robust 60% year-on-year rise in net profit, while sales may see a 57% jump for the Apr-Jun quarter, according to the estimates.

 

Apollo Hospitals, a Nifty-50 constituent from the sector, may report decent growth in its hospitals and pharmacy business for the quarter. Max Healthcare's June quarter earnings may get a boost from the consolidation of its acquired business.

 

Following are the Apr-Jun consensus earnings estimates of pharmaceutical and healthcare companies that constitute the Nifty 200 index:

 

Company name	Sales, INR million	PAT, INR million	Sales Y-o-Y Change %	PAT Y-o-Y Change %	Sales Q-o-Q Change %	PAT Q-o-Q Change %	EBITDA, INR million
Alkem Laboratories +	31,960	4,904	5.42	(10.05)	1.66	60.33	6,051
Apollo Hospitals +	57,128	3,687	12.33	20.81	2.16	(5.36)	7,891
Aurobindo Pharma +	81,653	9,220	7.91	0.31	(2.59)	2.06	17,255
Biocon +	40,402	995	17.69	(84.91)	(8.53)	(71.11)	8,414
Cipla +	70,317	12,000	5.05	1.90	4.49	(1.79)	17,104
Divi's Laboratories	24,740	5,941	19.92	38.17	(2.45)	(10.93)	8,260
Dr. Reddy's Lab +	85,174	14,869	10.67	85.56	(0.13)	(6.68)	22,102
Glenmark Pharmaceuticals +	35,945	3,679	10.80	8.12	10.39	7,811.83	6,733
Lupin +	62,961	10,025	12.42	25.77	11.10	29.77	15,889
Mankind Pharma +	35,581	4,439	22.97	(17.25)	15.55	5.50	8,736
Max Healthcare Institute +	24,266	3,791	57.27	60.46	27.06	18.85	6,083
Sun Pharma +	135,397	29,641	7.01	4.53	4.48	37.87	37,162
Torrent Pharma +	31,625	6,012	10.61	31.54	6.88	20.71	10,403
Zydus Lifesciences +	64,936	12,945	4.61	(8.83)	(0.53)	10.56	19,640
Average	55,863	8,725	10.82	6.58	3.33	13.51

Notes:

+ Consolidated Figure

Y-o-Y: Year-on-Year

Q-o-Q: Quarter-on-Quarter

N.A.: Not Available

Estimates from:

Antique Stock Broking Ltd., Centrum Broking Ltd., Dolat Capital Market Pvt. Ltd., Kotak Institutional Equities, Motilal Oswal Financial Services Ltd., Nuvama Wealth Management Ltd. and Prabhudas Lilladher Pvt Ltd.

 

End

 

Compiled by Vinod Bhovad

Edited by Saji George Titus

 

 

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