2QFY18E Results Preview

Unlike the last two quarters, the Indian pharma sector will witness some relief in 2QFY18, largely led by certain one-off factors. Channel re-stocking will help many companies in the India branded business, and a couple of significant launches in the US market will provide a further boost. For our coverage universe, we foresee a 15 per cent sequential jump in revenues, and the EBITDA margin to move up to 22 per cent from 18 per cent QoQ. On a YoY basis, we expect single-digit top-line growth. 2HFY18 is again likely to be soft, with no visibility on resolution of the FDA issues of large companies like SUNP and DRRD.

Cliffhangers; SUNP and DRRD:
The Halol resolution and the specialtybusiness remain key triggers for SUNP post 2QFY18. However, any further delay in the resolution and a negative outlook for the specialty business would lead to significant earnings cuts for FY19/FY20, as Taro’s business continues to erode. Similarly, DRRD’s fate is tied to key product launches in 2HFY18, like gCopaxone and gNuvaring. However, further negative regulatory developments at Duvvada (WL) and Bachupally (483) will suppress any recovery.

Making hay:CDH and ARBP are likely to report strong growth in both revenue and earnings in 2QFY18. We expect CDH’s top-line to grow~27% YoY, and an EBITDA margin improvement of ~250bps YoY, driven by the gLialda launch in the US. ARBP is also likely to report buoyant numbers on account of the gRenvela launch in Jul-17. The outlook for rest of the year remains strong for both companies, with key launches in the pipe for the US market.

Sequential recovery: Unlike the last few quarters, LPC is likely to witness sequential growth in its top-line, led by higher sales in India and flattish US revenues. DISH is also likely to see growth return, with Niraparib sales reflecting from 2QFY18. DIVI to report improved profitability, with remediation costs having tapered down. CIPLA, ALKEM, ALPM and TRP will also deliver improved performance on the back of the pick-up in the India branded business.

Top picks: CDH, LPC, ALKEM, DISH and GRAN PHARMACEUTICALS















Brief respite