Three pharma companies to focus on

Aurobindo, Glenmark, Natco see strong domestic and US growth, which should reflect in results

Indian pharma companies have seen topsy-turvy fortunes for more than a year now. After a weak June quarter impacted by drug pricing and fixed dose combination bans, companies have reported good growth in the September quarter. Led by rebound in acute segment, domestic pharma market has grown 12.6 per cent in the September quarter, the fastest pace in many quarters.

Benefits are likely to accrue to Sun Pharma, Lupin, Dr Reddy’s, Cadila, Glenmark, and many others. However, a lot of them derive most revenues from international markets (mainly the US), and, hence, their growth prospects in other geographies hold the key.
 
While Sun Pharma, Lupin, Dr Reddy’s are long-term plays, whose stock prices are now factoring most of the negatives — any positive developments can give triggers; Aurobindo Pharma, Glenmark, and Natco are witnessing strong traction in domestic and global markets.

Aurobindo has seen most of its facilities cleared from the US after inspections. Not only has the company got over 75 abbreviated new drug application approvals in the past 18 months and 176-plus are pending approvals, the quality of approvals and launches such as those in injectibles, peptides, controlled substances (that face limited competition) will keep growth prospects strong.

Also, while Aurobindo’s acquisition of US-based Natrol’s portfolio will drive growth of its over-the-counter business, Actavis portfolio acquisition will drive its European sales. Citi Research, which has Aurobindo as their top pick, says a large basket of filings and clean compliance slate should translate into a regular stream of approvals, and low product concentration limits risk on base business pricing.

For the September quarter, analysts at Religare expect turnaround in European business plus continued momentum in US sales to fetch revenue growth of 15 per cent with operating profits growing 22 per cent year-on-year. Glenmark is another player benefiting from strong domestic and US growth.

The company, which had reported a 10.4 per cent growth in the June quarter ahead of domestic pharma market, might see higher growth in the September quarter. US sales — led by price hikes in dermatology drug, Mupirocin generics, and new launches — are expected to remain strong.

Notably, bigger launches are slated for the second half of FY17. Though some impact of pound fall may be seen in the second quarter, US generics growth is seen picking up. Motilal Oswal analysts estimate Glenmark’s second-quarter sales and profits to grow 19 per cent year-on-year.

Natco is also benefiting from strong domestic growth momentum led by its Hepatitis C portfolio as it concentrates on cardiology and diabetic segment. Analysts at Edelweiss expect strong momentum to continue in India and earnings growth to remain upbeat during the September quarter.