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Pharmaceuticals Q4FY22 Preview: External headwinds leading to muted expectations

ICICI Securities 13 Apr 2022

What’s buzzing:

 Pharmaceuticals witnessed a mixed quarter with the phase of smooth going in the first half (decent domestic traction, normalising scenario on input cost inflation and logistics) almost undone by headwinds such as Russia-Ukraine crisis and Covid wave in China.

Context :

Growth in domestic formulations induced by early bump in sales due to Covid and acute therapies is expected to be partially offset by continued price erosion in US Pharma pack and slower offtake in APIs sales. Logistical delays and high freight cost due to Russia-Ukraine conflict and closure of port cities amid Covid wave in China leading to inflationary input (Solvents, KSM, API) cost is likely to impact EBITDA margins negatively by 106 bps to 22.4% for our Pharma select pack.

Perspective :

During Q4, Domestic formulations (select pack) are expected to grow ~11% YoY to Rs 10,609 crore on the back of 1) price hikes, 2) continued traction for acute therapies being supplemented by pick-up in chronic demand and 3) a small bump in Covid induced sales. On the US front, high single digit price erosion in generics besides negative USFDA compliance outcomes are likely to outweigh traction for recent approvals, resulting in growth of 5% YoY to Rs 12,788 crore. The universe (13 coverage companies) is expected to post YoY growth of ~7% to ~Rs 44,593 crore. On the company’s front, Divi’s Lab, Biocon, Ipca and Sun Pharma are likely to report 10%+ YoY growth.

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