Pharma firms to report flat EBITDA growth

Mumbai: Pharma firms are likely to report sequentially flat EBITDA growth in 3QFY17, impacted by pricing pressure and higher R&D expenditure, a report said.

“We expect our pharma universe to report sequentially flat EBITDA growth in 3QFY17, largely led by pricing pressure and higher R&D expenditure. Also, increased US regulatory scrutiny is resulting in higher remediation expenses and de-risking of key products. This, in turn, should weigh down on operating margins,” brokerage firm Motilal Oswal said in a report.

In its expected quarterly performance summary, the report said that the top pharma companies are expected to report 0.7 per cent Q-o-Q sales growth at Rs 38,137 crore in December 2016 quarter. The EBDITA may see marginal decline of 0.6 per cent at Rs 9,245 crore in December quarter.

After a strong 1HFY17, the domestic pharma business is expected to face headwinds from seasonal weaknesses and demonetisation. Although the chronic segment may benefit at the margin due to demonetisation, the acute segment may see some impact in the near-term, the report said.

The depreciation of rupee against the dollar is however, expected to benefit export-oriented companies. The average rate of the rupee against the US dollar has depreciated by 2.3 per cent Y-o-Y over the past year (67.46 in 3QFY17 vs 65.95 last year). However, USD/INR had been flat sequentially. It is thus, unlikely to result in any significant MTM impact for companies with large forex debt and derivative exposure, it said.

Brexit was also expected to have a negative impact on companies from 2QFY17. However, we note that most Indian companies have limited exposure to the UK market (1-2 per cent of sales).

Also, post Brexit vote, it is still unclear whether or not Indian companies will have to conduct separate trials for approval in the UK and other EU markets.

Separate trials would mean additional cost for companies, however, this is not expected to happen at least for next two years, the report said.

Among domestic pharma firms, Glenmark is expected to exhibit strong growth in the US, led by Zetia FTF and a series of other generic launches. Aurobindo may report stable US sales, driven by key launches including Crestor.