Pharma sector's Q4 results show moderate gains amid Covid-19 pandemic

The ongoing April-June quarter should see strong growth due to low base of last year

What will be the impact of the second wave and the pandemic in general on Indian pharmaceutical companies? It should lead to a rise in volumes, given that Indian companies are the world’s biggest bulk drug exporters.

India exports roughly 20 per cent of the world’s generic drugs. However, at another level, Indian companies are still struggling with some supply chain issues. Wuhan, the epicentre of the Covid-19 outbreak, was also the centre of the world’s supply of API (active pharma ingredients). Replacing that source has been difficult.

The current April-June quarter will be difficult to assess due to the lockdown last year. Almost certainly, the low base effect will mean high double-digit, maybe even triple-digit, growth for most businesses. However, the fourth quarter (Q4) of financial year 2020-21 (FY21) saw close to normal conditions, and that can be compared to Q4FY20, which was affected only in the last 10 days of March 2020.

A sample of 26 pharma companies have released Q4 results, including most of the majors. Aggregated sales amount to Rs 25,671 crore, a rise of 7.5 per cent year-on-year (YoY) over Rs 23,878 crore in the corresponding quarter. Ebitda was up 29.8 per cent at Rs 7,344 crore, and PAT rose 158 per cent at Rs 2,200 crore. Interest costs were down 29 per cent, tax paid is up 6.8 per cent, Inventory was tight with a negative stock adjustment.

Let’s remove Piramal Enterprises from the sample because it has a huge exposure to the finance industry. It registered consolidated net losses of Rs 571 crore in Q4, versus net loss of Rs 1,702 crore the previous year. This caused huge distortions.

Without Piramal, the sample shows 8.4 per cent growth in sales, 8.5 per cent rise in PAT, and 13.65 per cent rise in Ebitda. This is a moderate performance. Of the majors, Dr Reddy’s Laboratories (DRL) reported 27.5 per cent decline in PAT. However, DRL is also likely to gain from its deal to produce the Sputnik V vaccine.

Among the other majors, Cipla saw 68 per cent rise in PAT, Lupin 18 per cent, which will be upgraded to about 42 per cent rise if we factor out extraordinary items. Biocon saw 97 per cent rise in PAT. Among other pharma companies, Hikal saw PAT rise 108 per cent and the stock has seen speculators piling on after it announced a new 10-year contract to supply niche APIs to a leading global MNC.

The NSE Pharma index has underperformed the benchmark Nifty in the past 12 months, returning 46 per cent while the Nifty returned 64 per cent. However, both indices have returned around 6 per cent thus far in 2021.