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Preview: Pharma margins to crimp

This is happening to mid-size pharma margins despite the strong sales in April-June quarter.

Written by Agencies | Mumbai |
July 15, 2011 10:45:17 am

MIDCAP-DRUGS/PREVIEW: Mid-sized Indian drugmakers (pharmaceutical companies) are expected to post steady to strong revenue growth in April-June,riding healthy domestic and overseas demand,but higher would crimp margins.

Companies like Lupin,Cadila Healthcare,Glenmark Pharmaceuticals and Aurobindo Pharma would see sales growth of between 15 to 20 percent for the first quarter,analysts said.

Margins are likely to decline about 200 basis points for the healthcare sector primarily because of the high base effect and higher operational costs,analysts said.

We expect margins to contract by 177 basis points as the growth on the revenue front is unlikely to offset increase in raw material and SG&A (sales,general and administrative) cost,Sushant Dalmia,sector analyst at Pinc research,said.

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While sales in the domestic market would rise about 15 percent on an average,the U.S. market might see even higher business growth,analysts said.

The BSE healthcare index ,which rose 6.21 percent in April-June,has outperformed the wider index that fell 3.08 percent over the same period.

The U.S. generic business would drive the growth for most companies as there is recovery seen in the world’s top drug market,Siddhant Khandekar,analyst at ICICI Securities,said.

For Indian mid-sized drugmakers,on an average,U.S. generics business constitutes about 35 to 40 percent of their overall sales and has higher margins compared to domestic and unregulated markets.

Although,the margins growth would be muted in the quarter,companies like Cadila,Lupin,Indoco Remedies and Glenmark would continue to post upward profit numbers on better mix of high-margin products.

Lupin and Cadila Healthcare are expected to report 17 percent and 20.5 percent sales growth respectively for the June quarter while Indoco Remedies and Aventis Pharma would see revenue rising 21.1 percent and 10.3 percent respective,Angel Broking said in a note.

Aurobindo Pharma’s EBIDTA margin is expected to improve by 90 basis points to 16 percent while profit after tax (PAT) would improve 33 percent to 1.1 billion rupees,Emkay Global Financial Services said in a note.

Cadila’s operating margins would rise by 225 basis point and PAT would jump 51.5 percent to 2.4 billion rupees,it said adding Lupin’s operating margins would decline 168 basis points on increased operational expenses and PAT would gain 6 percent 2.1 billion rupees for June quarter,it said.

Poor performance by contract research and manufacturing services providers Strides Arcolab and Biocon will affect their net profit growth for the pharmaceuticals sector,brokerage Motilal Oswal said in a note.

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