Pharma Q3FY24 outlook: What the Street anticipates

Pharmaceutical companies are anticipated to witness robust year-on-year (YoY) growth in the third quarter, with estimated sales growth of 20%. This positive trajectory is set to be fueled by traction in US generics and a strong performance in the domestic formulations market. Projections suggest that the earnings before interest, tax, depreciation, and amortisation (EBITDA) growth of around 15% will be driven by niche launches in US generics and the advantage of lower freight and input costs. The profit is estimated to grow at over 15% YoY supported by reduced depreciation and tax.

In the United States, a YoY growth of 7%-8% is expected for the quarter, propelled by a reduction in pricing pressure and increased traction in limited competition drugs. Company-specific predictions include a 15-16% growth for Lupin, led by the sales of the inhaler drug Spiriva generic. Cipla and Dr Reddy's are expected to maintain steady YoY contributions, with Cipla potentially facing quarter-on-quarter (QoQ) sales pressure due to a loss in market share for their key drug, Albuterol.

Domestic formulations are poised for steady growth of 8%-10% YoY, supported by enhanced market representative productivity, focus on over-the-counter (OTC) products, and the introduction of niche products in the country. Torrent Pharma is likely to report strong growth of around 15%, Alkem around 10-11%, and Mankind could outperform with a growth exceeding 25%, driven by a low base and sustained volumes.

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Stock-specific updates include expectations of over 15% YoY sales for Divis Labs, with a focus on commentary regarding opportunities from GLP1 inhibitor drugs. Biocon's biologics sales may grow by as much as 40% YoY, attributed to market share gain in existing products. Investors will closely watch for updates on USFDA from Sun Pharma, Cipla, Biocon, Glenmark, and Dr Reddy's.

While valuations have experienced a strong run-up, analysts suggest that true outperformance in terms of earnings will determine stock performance. Nithya Balasubramanian, Director-Healthcare at Sanford Bernstein, notes that the pharmaceutical sector is expected to rebound after a relatively weaker second quarter (Q2), with companies like Mankind, Alkem, and Cipla likely to post stronger numbers in the third quarter of FY24, reflecting positively on their margins.

“Also, one of the names we are expecting to do well after the quarter reporting would be Cipla because valuations are relatively reasonable. Of course, Cipla also did well last year,” she told CNBC-TV18.

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