Pharma Q1 Results Review - Strong Overall Show; U.S. Visibility Improves: Nirmal Bang

Nirmal Bang Report

Key Points

• For Q1 FY24, our pharma coverage universe has posted robust ~19% YoY revenue growth on the back of volume ramp-up, new launches (especially Revlimid) and stabilising pricing pressure in the U.S. base business. Ebitda margin improved by a healthy ~500 basis points YoY amid normalising cost inflation and stabilizing price erosion.

• Among the large caps, Zydus Lifesciences Ltd., Mankind Pharma Ltd. and Dr. Reddy’s Laboratories Ltd. reported strong all-round performance, with double-digit revenue growth and robust margin improvement. In the midcap and smallcap space, Eris Lifesciences Ltd.(consolidation of acquisitions) and Natco Pharma Ltd. (Revlimid boost) were the best performers while Indoco Remedies Ltd. reported tepid performance due to weak domestic sales, plant-related regulatory issues and deferment of milestone income.

• For FY24, domestic growth is expected to be in low double digits while US market growth would remain robust with normalising price erosion in the base business, continuous ramp-up in Revlimid and new launches. Margins will also improve amid normalizing raw matrial and freight costs, diminishing U.S. price erosion and a better mix. However, U.S. Food and drug administration inspections remain an overhang and price erosion in the U.S. is expected to increase once supplies normalize. Therefore, our focus remains on companies that are focusing on the branded business and have the least exposure to U.S. generics.

• Sun Pharmaceutical Industries Ltd. and Cipla Ltd. are our top picks in the large caps while JB Chemicals and Pharmaceuticals Ltd., Ajanta Pharma Ltd. and Eris Lifesciences are our preferred picks in the midcap and smallcap space.

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