Pharmaceuticals: 1QFY18 Results Preview

While the 4QFY17 performance of the Pharma sector was impacted by a sudden drop in US sales, 1QFY18 is likely to be adversely affected by GST-related channel de-stocking. Overall, we expect a single-digit top- line decline YoY for our coverage universe. The drop in profitability is likely to be influenced by both lower sales of exclusive products (gGleevec, gGlumetza and gAbilify), and compensation for lost tax credits offered to dealers in the face of GST implementation.

Source:Company, HDFC sec Inst Research

However, we believe that the operating performance is likely to have bottomed out in 4QFY17 and companies like LPC, CDH, GNP and ARBP are now receiving a higher number of product approvals, leading to stronger base businesses in the US.

Within our coverage universe, DRRD, GNP, and GRAN, are likely to report flat or positive growth on top-line and earnings. We expect DRRD's top-line to grow ~4% YoY, and an EBITDA margin improvement of ~700bps YoY over 1QFY17, which included significant remediation cost related to USFDA plants. GNP is also likely to report better YoY numbers on the back of gZetia sales, with the top-line growing at 20% and margins improving by 500bps in 1QFY18.

SUNP will report revenue decline on a high base of 1QFY17, which included gGleevec sales, and margins are also likely to shrink YoY. However, we expect sequential improvement in EBITDA margins owing to the absence of the one-off costs of 4QFY17. ARBP will also report modest growth of 3-4% on the top-line, but the price erosion in the US will lead to lower profits this quarter. This is a seasonally strong quarter for ALKEM. However, the GST impact will lead to flat growth on the top- line. Margins are likely to have been affected owing to lower realisations on the back of tax reimbursements.

Lupin is expected to report better EBITDA margins sequentially, with the absence of several one-off costs. However, lower gGlumetza and gFortamet sales will lead to a modest top-line decline (~4%YoY).