The pharma sector is back on growth track, believe analysts at domestic brokerage house Axis Securities, and they continue to maintain a bullish stance as the companies reported a stellar set of June quarter (Q1FY24) numbers. In Q1FY24, the pharma companies under Axis Securities' coverage recorded robust revenue growth on account of volume ramp-up, new launches (especially Revlimid), and stabilising pricing pressure in the US base business.
The sector will likely post low double-digit domestic growth in FY24, while growth in the US market will remain robust thanks to the normalisation of prices in the base business, the continued ramp-up of gRevlimid and new product launches, the brokerage said.
Margins are also expected to improve as raw material and freight costs normalise, US price erosion eases, and better product mix is achieved.
In the US business, supply constraints have led most business leaders to point to a sharp decline in price erosion, which is expected to remain low for the remainder of FY24, it said.
However, the brokerage said that the USFDA inspections remain an overhang and price erosion in the US is expected to increase once supplies normalise. It continues to eye on companies that are focused on launching niche products in the US market and a strong product mix (Chronic Portfolio) in the Indian market.
The brokerage has identified three pharma stocks — Lupin, Cipla and Aurobindo Pharma — with 'Buy' ratings and price targets that suggest up to 20 percent upside.
| Company | Rating | Target Price | Upside Potential |
| Lupin | BUY | Rs 1,200 | 9.84% |
| Cipla | BUY | Rs 1,380 | 11.86% |
| Aurobindo Pharma | BUY | Rs 1,000 | 19.60% |
Lupin: The company's sales grew 28.6 percent year-on-year to Rs 4,330 crore mainly on the back of India business (+9.8 percent YoY), EMEA business (+19.6 percent YoY), API business (+32.1 percent YoY) and stable US business (+3.4 percent QoQ).
Sales of gSuperb, gAlbuterol, gLisinopril and the new launch of Darunivar (exclusivity in 800 mg) continue to perform encouragingly in the US, while the base business is seeing low single digit price erosion.
"We have confidence in Lupin’s business supported by 1) New launches in the US market like Darunavir, Cynocobalamin, Diazepem Gel, Vereniciline, Bromfenac etc. excluding gSpirva, 2) Double- digit growth in India business as the company has already increased MR to 1,000, 3) An uptick in the API business as the API industry is witnessing demand revival," Axis Securities said.
Cipla: It reported the highest US business ever of $222 Mn (+26 percent QoQ), mainly due to better execution in the base business and a higher than expected revenue contribution from gRevlimid.
gAdvair production is delayed by almost a year and may be moved overseas. Management expects the average run rate of the US business to be between $210 million and $215 million in the coming quarters.
Aurobindo: The US revenue at $402 million was up 8.6 percent QoQ. Injectable businesses in the US reported 5 percent YoY growth, driven by strong underlying business growth as price erosion was negligible in the last quarter.
Antiretroviral (ARV) sales increased by 20 percent QoQ to Rs 190 crore. API sales increased 1.5 percent QoQ to Rs 1,033 crore.
Aurobindo has several growth levers in place. These, as per the brokerage, are Generic injectibles, Eugia ($411 million sales), which could grow in low double-digits due to value-added approval; the launch of Trastzumab biosimilars in Q2FY24E; the launch of Pen–G injectible in Q1FY25E; and one-time opportunity in gRevlimid in the next 2-3 years.
(Edited by : C H Unnikrishnan)
First Published: Aug 24, 2023 10:06 AM IST
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