ICICI Securities has projected weak performance by healthcare companies in the first quarter ended June 2017 on account of GST implementation, competition and pricing pressure. ICICI expects weak results from Sun Pharma due to high base with exclusivity of generic Gleevec and continued pricing pressure in Taro Protfolio, Alkem Labs due to high dependence in India business and Lupin on competition ingeneric Fortamet and authorised generic launch in Glumetza. Overall, ICICI expects the companies to report 1.1 per cent revenue and 23.5 per cent declined YoY with EBITDA margin drop of 360 bps.
The Indian pharma market witnessed moderate growth, impacted by destocking before the implementation of GST in July'17, at average 7.7per cent in value terms during the quarter (source: AWACS). This impact by GST is temporary in nature and normal domestic performance is expected to revert with few months. Secondary sales clearly indicate the value decline of 23.9 per cent and 4.6 per cent YoY and 14.9 per cent and 5.5 per cent QoQ in portfolio under FDC and LNLEM, respectively, due to FDC ban and price revision, respectively.
ICICI projected Q1FY18 numbers to show moderate growth decline in US sales. Glenmark would gain from continued exclusivity of generic Zetia and Sh8ilpa Medicare from launch of new products in US. Sun Pharma is expected to face pricing pressure in Taro portfolio and base effect of exclusivity sales of generic Gleevec. Cadila would benefit from recent product approvals from Moraiya facility.
The key factors to observe in Q1FY18 numbers and management commentary would be GST impact on the domestic business and its normalisation, update on US FDA issues plaguing several companies, continued pricing erosion in US business with consolidation of the buyers and increased competition, and growth in emerging markets after stabilisation of currencies and any working capital issues in these markets.
According to ICICI Securities report, Alembic Pharma may be under pressure as the company failed to launch new meaningful products in US generic market. Its domestic performance would decline due to GSTT implementation and lower India sales to impact EBITDA margins. Alkem Labs may impact due to heavy dependence on domestic business (around 73%) due to destoocking associated with GST. The working of Apollo Hospital may be under pressure with addition of newer beds and commercialisation of Navi Mumbai Hospital in recent past. The domestic business of Cadila Healthcare, Cipla, Dr Reddy's Laboratories, Glenmark, and Jubilant Life will be under pressure due to GST implementation.