US markets still weak, but signs of recovery in other key ones
Pharmaceuticals companies struggled for volume growth during the quarter ended June due to weak US markets, but still ended with profit before tax and extraordinary income of Rs 2,502 crore compared to a net loss during the preceding two quarters.
An analysis of results from 83 small, medium and large companies indicate that the domestic business is growing at a healthy pace, while export markets remain subdued.
| SWEET PILL Q1 review: Pharmaceuticals sector | |||
|
Top 10 | Y-o-Y growth rate in % | ||
| Sales | OP | NP * | |
| Dr Reddy’s Labs | 21.49 | 237.35 | 159.75 |
| Cipla | 13.20 | 102.72 | 72.60 |
| Lupin | 25.89 | 27.05 | 28.03 |
| Ranbaxy Labs | -17.29 | — | 2,746.40 |
| Wockhardt | 4.82 | -33.20 | -279.34 |
| Cadila Health | 28.38 | 43.96 | 39.15 |
| Piramal Health | 15.98 | 37.49 | 25.23 |
| Aurobindo Pharma | 19.13 | 42.29 | 911.24 |
| Sun Pharma | -24.40 | -82.16 | -71.90 |
| Glenmark Pharma | 17.98 | -24.47 | -53.67 |
| * Based on reported net profit; OP: Operating profit | |||
The reported net profit of 83 firms rose by a healthy 29.4 per cent (adjusted net profit up 5 per cent), but largely due to gains on foreign exchange loans, gains on fair valuation of derivatives and profits in FCCB buyback. Ranbaxy Laboratories, Aurobindo Pharmaceuticals and Stride Arcolab are illustrations and have reported higher profits on extraordinary gains. Wockhardt provided mark to market losses on derivatives, while Glenmark Pharmaceuticals made a provision for foreign currency exchange losses, to report lower profits.
The profits of Sun Pharmaceuticals were hit by lower sales by its US-based subsidiary, Caraco, while Divi’s Laboratories reported a decline in net profit due to tax provision for earlier years. Dr Reddy’s Laboratories posted a healthy result on the back of a one-time contribution of Rs 210 crore in sales and Rs 73.4 crore in net profit from Imitrex AzG. Cipla reported strong numbers on healthy growth in export formulation sales and lower provision for forex losses at Rs 27 crore against Rs 74.7 crore in the same quarter last year.
Overall, the numbers for the first quarter ended June were notably higher than the growth in previous quarters due to the improving business environment in semi-regulated and advanced markets and the European Union, indicates the pharma analyst at Sharekhan Research. The domestic formulation business continued to be the main growth driver for most of these companies, while Piramal Pharma, Cadila Healthcare and Lupin benefited from consolidation of their acquisitions.
The reported earnings were higher due to significant profitable adjustment and a stronger rupee. The operating margins were lower by 132 basis points to 13.52 per cent due to a poor show by Glenmark Pharmaceuticals, GlaxoSmithKline, Novartis, Plethico Pharma, Ranbaxy Labs and Sun Pharmaceuticals. The results were extremely well for Dr Reddy’s Laboratories, Cipla, Cadila Healthcare and Piramal Healthcare.
The pharma analysts are expecting good second-quarter numbers from the sector on account of improved economic conditions in the US and Europe. According to the CITI group analyst, the first quarter numbers of Glenmark Pharma reflect the company’s efforts to recover from a poor FY09. The profits are depressed by translation losses but adjusted net income is in line with estimates. Moreover, sales numbers show there are signs of improvement in key markets.
The analyst at Kotak Securities said the decline in sales of Sun Pharma was largely due to fall in finished dosage sales at Rs 300 crore from an estimated Rs 400 crore. The US generics’ sales were, at Rs 230 crore, lower than the estimate of Rs 380 crore due to lower sales at Caraco. Margins were significantly lower due to inventory provision at Caraco, forex losses and adverse product mix, with lower proportion of formulations’ sales.
Ranbaxy Laboratories reported a flat year-on-year consolidated revenues, but an appreciable 15 per cent improvement over the March 2009 quarter. The sequential growth in revenues came from the domestic formulation market.
According to the analyst at Reliance Money, European sales were key to revenue growth, while US operations witnessed a hit from US FDA issues. The emerging markets contributed about 57 per cent of Ranbaxy’s global sales. Latin America and the Middle East faced lower demand due to the slowdown.
Lupin reported a 25.9 per cent rise in net sales on strong traction across advanced formulation sales, a healthy growth in the domestic formulation business and higher revenues from the Japanese market. The advanced formulation businesses maintained upward growth momentum following the company’s strategy of focusing on niche products.
Dishman Pharmaceuticals reported subdued sales due to lower sales from the Solvay contract. However, the company’s operating margins improved due to the fall in raw material costs and other expenditure.
Aventis Pharma reported unchanged net sales due to discontinuation of distribution of the Rabipur vaccine. Operating margins expanded by 94 basis points on the back of decline in the cost of traded goods.
