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Pharma Firms May Report Subdued Performance In Q2 FY17: Report

It said EBITDA margins will continue to be under pressure on account of increased R&D spending and adverse product-mix

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Domestic pharmaceutical companies are likely to report subdued sales, EBITDA and PAT figures in the second quarter of this fiscal, even as the formulations business may see a strong recovery, a report said.

"We expect the pharmaceutical companies to report subdued performance on sales, EBITDA and PAT front in Q2 FY17 led by the quiet US business on lack of fresh ANDA approvals due to the pending US FDA issues.

"Pharma companies are likely to report sales, EBITDA and PAT growth of 10.2 per cent YoY, 9.4 per cent YoY and 14.3 per cent YoY, respectively in Q2 FY17," Reliance Securities said in its report.

"However, industry expects strong recovery in domestic formulations business for most companies under our coverage driven by strong monsoon, while favourable y-o-y movement in non-USD currencies and new drugs approvals will drive growth in emerging markets," the report said.

It said EBITDA margins will continue to be under pressure on account of increased R&D spending and adverse product-mix.

"We continue to remain positive on long-term prospects of the pharma sector and recommend being stock-specific," it added.

The US remains mainstay for most companies, contributing 55-60 per cent of total exports.

Measures like aggressive R&D spend and scale-up in complex ANDA filings are considered to be the key re-rating triggers, it said.

However, few operational metrics have exhibited lack of momentum like critical facilities under US FDA lens, channel consolidation and slowdown in approvals.

While Sun Pharma Halol warning letter and Cadila's Moraiya warning letter are awaiting re-inspection from the US FDA, Dr Reddy's pending Form 483 to three plants is still undergoing Corrective and Preventive Action (CAPA) process and it is expected to submit re-inspection request shortly.

Lupin is awaiting the US FDA resolution for its Goa plant.

"The US revenue for the companies under our coverage universe is expected to decline sequentially by 5-6 per cent owing to increased competition leading to price erosion in base product portfolio, Gleevec/Glumetza 180 days exclusivity ends and lack of meaningful launches," it added.

Pharma companies are likely to witness strong recovery in domestic formulations business.

"We expect strong recovery in India formulations business for most companies driven by strong monsoon," it said.

The Indian pharma market has reported strong growth of 15 per cent and 18 per cent in July and Aug, respectively.

It is expected to witness 16-17 per cent CAGR in next few years, led by new product launches.