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Pharmaceutical companies are expected to post core profit growth of over 15%, year-on-year, for the quarter ended December 2013.
"We expect core profit growth of over 15% y-o-y across the pharmaceutical sector in Q3 FY'14. The US launches and currency benefit to be the key growth drivers," Kotak Institutional Equities said in its report.
While the domestic growth stays subdued, the US launches remain strong, it said. It expects the US generic launches to be the key growth driver, offsetting weak growth in India.
The improving US product mix and currency remain key margin drivers for Indian generics, according to the report.
"The currency benefit is likely to sustain. In the current quarter, The Indian rupee has appreciated by 1% sequentially on a quarter-end basis. Hence, we expect marginal impact due to translation impact of net balance-sheet items and MTM losses on foreign currency hedges," said Kotak Equities research analyst Krishna Prasad.
Among the leading pharma players, Sun Pharma and Dr Reddy's will lead the sector, while Lupin US generics growth is expected to remain strong, it said, adding that Kotak expects a stable growth for Glenmark and remains conservative on recovery in Cipla and Cadila in the third quarter of the 2013-14 fiscal (Q3 FY'14), the report said.
"We expect core profit growth of over 15% yoy across the sector except Cipla. Sun Pharma and Dr Reddy's will lead the pack--with 45% and 33% yoy net profit growth, respectively. In both cases, we expect US generics to be the primary growth driver along with currency," Prasad said.
"For Lupin, we estimate 13% y-o-y growth in EBITDA, while PAT growth of 26% is driven by lower tax rate. We expect strong margin expansion for Dr Reddy's (360 bps y-o-y) driven by US launches," the Kotak report said.
A gradual recovery is expected in Cadila and Cipla it said, adding that it does not factor in significant improvement in operational performance for the current quarter.
"We estimate sharp recovery in core EBITDA margin for Ranbaxy at 9% driven by lower remediation expense. We expect stable earnings performance for Glenmark with 19% y-o-y growth in core net profit," the report said.
For Lupin, the strong growth in US generics is partially offset by muted performance in India/Japan leading to marginal decline (40 bps) in EBITDA margin, Prasad said.
