The pharma sector in India is expected to give a steady performance in Q4 of FY23, with stable US sales and healthy domestic growth, amid lower cost pressures. Steady growth in the US and healthy domestic and year-on-year (YoY) margin expansion are expected in the sector.
As per a recent report by Kotak Institutional Equities, there would be greater stability in the US market with healthy domestic sales amid a gradual easing of cost pressures. The report predicts a healthy 5-18 per cent YoY domestic growth for the sector in Q4 FY23.
The Kotak report pointed out that of late, there have not been any big-ticket launches in the US by any company, which will restrict any meaningful uptick in the US sales sequentially. For most pharma companies in the US, there can be a QoQ (quarter-on-quarter) decline or flat sales.
A report by Prabhudas Lilalldher observed that there will be healthy EBIDTA growth of 19 per cent YoY (down 8 per cent QoQ), for the pharma sector mainly aided by steady domestic growth. The sector could also benefit from the depreciation of the rupee vs dollar (+10 per cent YoY) and will aid in the profitability of the pharma sector. Though cost pressures are gradually easing, they are likely to remain at elevated levels. Base business in the US is also likely to remain steady while the impact of the revision of National List of Essential Medicines (NLEM) will be seen in a few domestic-focused companies.
As per the Prabhudas Lilalldher report, the pharma sector is in a consolidation mode and the BSE Healthcare Index underperformed Sensex by 2 per cent in Jan-Mar 23. While the sector may continue to marginally underperform in the near term, the outlook for the pharma sector remains positive, led by tailwinds in the US generics, healthy domestic formulations segment and normalisation in input cost. Henceforth, profitability is expected to improve with steady domestic business, improved niche launches in the US market and continued cost optimisation. The report said companies with steady domestic franchises and strong US visibility will perform much better than the others.
In an earlier analysis by THE WEEK, it was estimated that the Indian pharmaceutical market (IPM) is expected to report 11-12 per cent year-on-year growth in the FY 2023 mainly pushed by price rise and further recovery in non-Covid drugs volumes. Building on to the recovery seen in June, the IPM reported 8.1 per cent YoY growth in July 2022.