Pharma firms face tough Q1 as sales see sharp drop on Q4 channel stocking

Analysts estimate sequential decline of 18-26% during the quarter

It is unlikely to be a healthy quarter for pharma companies as their financials have been dented by the lockdown in the June quarter. Domestic sales in April and May indicates that the pharma market declined by 11 per cent and 9 per cent, respectively, before registering a marginal recovery in June. The impact on outpatient departments and deferral of elective surgeries translated into muted prescription flow and sales.

Companies such as Cadila Healthcare, Cipla and Alkem, which have higher domestic contributions in their portfolios, will face challenges.  Surya Patra at Phillip Capital expects domestic pharma revenues of companies to be weak given pre-buying in chronic therapies in the March quarter which resulted in lower demand. The acute segment, too was muted due to lower prescription volumes. 

The US sales of pharma companies, which were boosted by higher channel stocking in Q4, are expected to decline sequentially. A combination of lower consumer demand and channel stocking in Q4FY20 could result in a sequential decline for most India-based companies, pointed out analysts at Nomura.

After significant disruption during the first half of June quarter, the pick-up in end-market demand thereafter is positive. Sun Pharma and Glenmark could be adversely impacted given the sharp drop in patients visiting physicians, especially in the ophthalmology and dermatology categories, say analysts at Nirmal Bang.

Overall the Indian pharma industry could witness a weak Q1 with 18 per cent sequential decline in earnings and 2.4 per cent earnings de-growth year-on-year, estimate analysts at Phillip Capital.  Those at Nirmal Bang, however, see a sharper 26 per cent sales decline in Q1. Among companies that could outperform are IPCA and Aurobindo. Led by strong Hydrochloroquine (HCQS) sales that was earlier recommended for Covid-19 treatment would translate into higher domestic and export revenues.

This coupled with higher pain relief portfolio should help IPCA post an 18 per cent revenue growth and 59 per cent year-on-year growth in profits. The new injectable launches, currency benefits and continued growth in base business will drive Aurobindo’s revenues by 9.9 per cent. Its net profit should grow 12.8 per cent year-on-year while declining sequentially.

For Cadila Healthcare, the other key player in HCQS, higher exports coupled with rupee depreciation will cushion weakness in domestic markets and could lead to sales growth of 2 per cent year-on-year and margin improvement by 40 basis points. Cipla will also benefit from the launch of Albuterol inhaler which will aid in revenue growth (up 0.7 per cent). However,  the high base of a thyroid treatment drug which is witnessing increased competition could impact margins and profits.