ICICI Securities Ltd. | Retail Equity Research August 29, 2016 Monthly Update Q1 earnings in line; midcap pharma gallops… The Q1 earnings season ended on expected line with US focused generic players more or less managing to overcome pricing pressure with exclusivities and higher volumes. I-direct pharma universe registered YoY revenue growth of 9.4% to | 35662 crore, driven by 15.2% YoY growth to | 11496 in the US and 7.6% YoY growth to | 7863 crore in domestic formulations (select pack). Domestic growth was largely hit by the ongoing NLEM/FDC related issues. EBITDA for the universe grew 7.2% YoY to | 8579 crore. Lower growth vis-à-vis revenues can be attributed to higher R&D spend and remedial costs. Adjusted net profit grew 8.5% YoY to | 5919 crore. Adoption of a new accounting standard (Ind-AS) also had an impact on the quarterly performance. On the revenue front, Natco (46% growth) and Lupin (41% growth) were standout performers. Natco’s revenues were largely driven by robust growth in the Hepatitis C segment while Lupin benefited from exclusivity sales in the US. Alembic, Divi’s, Sun, Biocon and Ajanta also reported more than 20% growth. On the other hand Dr Reddy’s, Torrent and Cipla reported negative growth mainly due to high base and price erosion in the US. US growth was driven by limited competition opportunities/exclusivities at Lupin from gGlumetza and gFortamet (anti-diabetic) and Sun from gGleevec (anti-cancer). Note that US growth has not captured gNexium (GI) impact for Cipla and gAbilify for Alembic for non-disclosure of specific traction. Aurobindo and Glenmark also registered strong YoY growth whereas Torrent, Cadila and Dr Reddy’s (DRL) were laggards on account of base effect, slowdown in product approvals and regulatory issues. In another significant development, Biocon and Mylan received European Medicines Agency’s (EMA) acceptance to review Mylan’s marketing authorisation application (MAA) for a proposed biosimilar Trastuzumab used to treat certain HER2-positive breast and gastric cancers. This is the second biosimilar submission developed by the partnership that has been accepted for review in Europe. Finally the Indian pharmaceutical market (IPM) grew 9.5% YoY to | 9125 crore for July. Growth was driven by price hikes- 3.3%, new product launches- 3.1% and volume growth- 3.2%. In all, 431 new brands were launched in July 2016, by far highest monthly launches in many quarters. No red flag on earnings front; regulatory worries waning… Although Q1 panned out on expected lines, a detailed dissection, especially of the US performance, gives an encouraging signal. Despite pricing pressure and client consolidation, which were thought to be significant headwinds post Q4FY16 numbers, most players (barring a few) managed to expand volumes thereby neutralising these headwinds. Regarding USFDA issues, Indian players have moved on and seem better prepared than 12-18 months ago as reflected in growing number of EIRs by the USFDA for Indian facilities. Indian formulations also did reasonably well despite NLEM, FDC issues. We expect the earnings momentum to continue on the back of incremental product launches in the US and likely positive outcome from USFDA re-inspections besides normalising of Indian formulations growth. We expect healthcare universe revenue, EBITDA and PAT to grow at a CAGR of 12%, 13% and 17%, respectively, in FY16-18E. Growth will be steered by US (~13% CAGR over FY16-18E) and Indian formulations (~14% CAGR over FY16-18E). Health Check Sector View Positive Index Performance as on August 26, 2016 Return (%) 1M 3M YTD 1Y CNX 500 0 8 9 9 Nifty -1 5 8 7 NSE Pharma -3 1 -5 -12 Return (%) Stocks Performance Mcap Company 1M 3M YTD 1Y 26-Aug Sun Pharma.Inds. -9 -8 -8 -15 182223 Lupin -15 0 -19 -20 67008 Dr Reddy's Labs 4 -2 -2 -27 51981 Aurobindo Pharma -1 3 -10 4 46053 Cipla 7 19 -13 -14 45365 Cadila Health. 3 16 16 -2 38841 Divi's Lab. 9 21 13 16 34723 Torrent Pharma. 12 17 12 1 27239 Glaxosmit Pharma -10 -16 -10 -12 25216 Glenmark Pharma. -2 -4 -8 -28 23821 Apollo Hospitals -2 -1 -9 -1 18541 Biocon 7 27 72 101 17780 Ajanta Pharma 9 26 45 35 17033 Alembic Pharma 1 17 -9 -10 11933 Natco Pharma 8 46 17 50 11841 Syngene Int. 10 19 10 40 9192 Wockhardt -19 -12 -46 -39 9043 Pfizer -2 6 -17 -15 8943 Strides Arcolab -20 -17 -28 -22 8291 Jubilant Life 51 46 23 44 8080 Ipca Labs. 6 25 -26 -30 6914 Indoco Remedies 3 9 -3 -4 2925 Unichem Labs. -4 3 2 2 2478 Return (%) Mcap: Market cap in | crore Price movement 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 Aug-15 Nov-15 Feb-16 May-16 Aug-16 4000 6000 8000 10000 12000 CNX Pharma Nifty (RHS) Research Analyst Siddhant Khandekar [email protected]Mitesh Shah [email protected]
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ICICI Securities Ltd. | Retail Equity Research
August 29, 2016
Monthly Update
Q1 earnings in line; midcap pharma gallops… The Q1 earnings season ended on expected line with US focused generic players more or less managing to overcome pricing pressure with exclusivities and higher volumes. I-direct pharma universe registered YoY revenue growth of 9.4% to | 35662 crore, driven by 15.2% YoY growth to | 11496 in the US and 7.6% YoY growth to | 7863 crore in domestic formulations (select pack). Domestic growth was largely hit by the ongoing NLEM/FDC related issues. EBITDA for the universe grew 7.2% YoY to | 8579 crore. Lower growth vis-à-vis revenues can be attributed to higher R&D spend and remedial costs. Adjusted net profit grew 8.5% YoY to | 5919 crore. Adoption of a new accounting standard (Ind-AS) also had an impact on the quarterly performance. On the revenue front, Natco (46% growth) and Lupin (41% growth) were standout performers. Natco’s revenues were largely driven by robust growth in the Hepatitis C segment while Lupin benefited from exclusivity sales in the US. Alembic, Divi’s, Sun, Biocon and Ajanta also reported more than 20% growth. On the other hand Dr Reddy’s, Torrent and Cipla reported negative growth mainly due to high base and price erosion in the US. US growth was driven by limited competition opportunities/exclusivities at Lupin from gGlumetza and gFortamet (anti-diabetic) and Sun from gGleevec (anti-cancer). Note that US growth has not captured gNexium (GI) impact for Cipla and gAbilify for Alembic for non-disclosure of specific traction. Aurobindo and Glenmark also registered strong YoY growth whereas Torrent, Cadila and Dr Reddy’s (DRL) were laggards on account of base effect, slowdown in product approvals and regulatory issues. In another significant development, Biocon and Mylan received European Medicines Agency’s (EMA) acceptance to review Mylan’s marketing authorisation application (MAA) for a proposed biosimilar Trastuzumab used to treat certain HER2-positive breast and gastric cancers. This is the second biosimilar submission developed by the partnership that has been accepted for review in Europe. Finally the Indian pharmaceutical market (IPM) grew 9.5% YoY to | 9125 crore for July. Growth was driven by price hikes- 3.3%, new product launches- 3.1% and volume growth- 3.2%. In all, 431 new brands were launched in July 2016, by far highest monthly launches in many quarters. No red flag on earnings front; regulatory worries waning… Although Q1 panned out on expected lines, a detailed dissection, especially of the US performance, gives an encouraging signal. Despite pricing pressure and client consolidation, which were thought to be significant headwinds post Q4FY16 numbers, most players (barring a few) managed to expand volumes thereby neutralising these headwinds. Regarding USFDA issues, Indian players have moved on and seem better prepared than 12-18 months ago as reflected in growing number of EIRs by the USFDA for Indian facilities. Indian formulations also did reasonably well despite NLEM, FDC issues. We expect the earnings momentum to continue on the back of incremental product launches in the US and likely positive outcome from USFDA re-inspections besides normalising of Indian formulations growth. We expect healthcare universe revenue, EBITDA and PAT to grow at a CAGR of 12%, 13% and 17%, respectively, in FY16-18E. Growth will be steered by US (~13% CAGR over FY16-18E) and Indian formulations (~14% CAGR over FY16-18E).
Exhibit 1: Summary of USFDA approvals for July, 2016
[5
Company Drug Name Therapeutic Area Innovator company Generic Version of Market SizeAurobindo Pharma METHENAMINE HIPPURATE Anti-infective US PHARM HOLDINGS HIPREX NAAurobindo Pharma GRANISETRON HCL Oncology Roche Kytril NACadila Healthcare Nateglinide diabetes NOVARTIS STARLIX NAAurobindo Pharma Estradiol and Norethindrone Acetate OC JANSSEN PHARMS ORTHO TRI-CYCLEN NAAurobindo Pharma Estradiol and Norethindrone Acetate OC JANSSEN PHARMS ORTHO CYCLEN-28 NAAurobindo Pharma ROPIVACAINE HCL Anaesthetic FRESENIUS KABI NAROPIN NADr Reddy's Lab Omeprazole and Sodium bicarbonate GI SANTARUS INC Zegerid US$ 306.7 millionAjanta Pharma Omeprazole and Sodium bicarbonate GI SANTARUS INC Zegerid US$ 306.7 millionSun Pharma Rosuvastatin Calcium CVS AstraZeneca Crestor US$ 6.7 billionAurobindo Pharma Rosuvastatin Calcium CVS AstraZeneca Crestor US$ 6.7 billionGlenmark Pharma Rosuvastatin Calcium CVS AstraZeneca Crestor US$ 6.7 billionGlenmark Pharma Triamcinolone Acetonide Dermatology NA NA US$ 4.4 millionGlenmark Pharma Potassium Chloride ER CVS UPSHER SMITH LABS KLOR-CON M10 US$ 283.2 millionAjanta Pharma Omeprazole and Sodium bicarbonate Powder CVS SANTARUS INC Zegerid Powder NAIndoco ALLOPURINOL Hyperuricemia SEBELA IRELAND Zyloprim NA
Company Drug Name Therapeutic Area Innovator company Generic Version of Market SizeAlembic Pharma Febuxostat Hyperuricemia Takeda Uloric US$ 430 millionLupin Fosamprenavir Calcium HIV ViiV Healthcare Lexiva US$ 71.6 million
Final Approvals
Tentative Approvals
CNS: Central Nervous System; CVS: Cardiovascular, GI: Gastro Intestinal, NA: Not available; Source: USFDA, ICICIdirect.com Research
M&As, demergers, tie-ups and JVs
Sun Pharma divested seven brands to RPG Life Sun Pharma has signed an agreement with RPG Life Sciences to divest seven prescription brands in India for a consideration of | 41 crore. The seven divested brands include brands used for treatment of respiratory-track infections, urological disorders, cardiovascular diseases and brands in health supplements segment. Lupin acquires 21 branded products from Japan's Shionogi Lupin forayed into Japanese branded pharma market by acquiring 21 branded products from Japan’s Shionogi & Co Ltd, through its subsidiary Kyowa Pharma for a consideration of ¥15.4 billion (~$150 million). As per the agreement, Kyowa will book the sales of these products from December 2016. These 21 products had sales of ¥9,400 million (~US$90 million) collectively on NHI price basis. Cadila acquires skin treatment lotion Melgain from Issar Pharma Cadila has acquired skin care brand Melgain (topical) from Hyderabad-based Issar Pharma. Melgain is used for depigmentary disorder called Vitiligo. The financial details of the deal were undisclosed. Price cuts, new launches, recalls, approvals
Sun Pharma recalling 16,085 bottles anti-depressant tablets from US Sun Pharma is recalling 16,085 bottles anti-depressant tablets from the US market due to failed dissolution specifications. The BuPROPion hydrochloride extended release tablets were manufactured at the company's Halol facility. As per the report, all recalls fall under a class III recall category. Cadila recalling over two lakh bottles of Venlafaxine HCL ER capsules Cadila is recalling 2,23,776 bottles of 150 mg Venlafaxine HCL ER capsules for failed dissolution specifications. This capsule is used for treatment of
ICICI Securities Ltd. | Retail Equity Research
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major depressive and anxiety disorders. These recalls are considered under class II recall category. NPPA fixes/revises ceiling prices of 24 essential drugs National Pharmaceutical Pricing Authority (NPPA) has fixed/revised ceiling prices of 24 essential drugs used for treatment of cancer, human immunodeficiency virus (HIV), bacterial infections, anxiety and cardiac conditions. Prices of these drugs have been reduced on an average of 25%. Lupin receives CDSCO approval in India for gastrointestinal tablet Lupin has received Central Drugs Standard Control Organisation (CDSCO) approval for gastrointestinal (GI) tablet Acotiamide (100 mg) in India. Acotiamide is a first-in-class novel drug to be introduced in India for patients suffering from dyspepsia or indigestion. The current market for plain GI prokinetics and combinations is estimated at ~| 2640 crore growing at 14%. Mylan-Biocon announce regulatory submission for Trastuzumab Biocon and Mylan have received European Medicines Agency (EMA) acceptance to review Mylan’s Marketing Authorization Application (MAA) for a proposed biosimilar Trastuzumab used to treat certain HER2-positive breast and gastric cancers. This is the second biosimilar submission developed by the partnership that has been accepted for review in Europe. In July, Mylan’s MAA for the proposed biosimilar Pegfilgrastim was accepted for review by EMA. Biocon-Mylan biosimilar Pegfilgrastim accepted for review by EMA Biocon has announced European Medicines Agency (EMA) has accepted for review Mylan's marketing authorisation application for their biosimilar product Pegfilgrastim, which is used to reduce the duration of neutropenia for cancer patients. Lawsuits, court rulings, settlements, regulatory issues
Sun enters into agreement with Almirall for Tildrakizumab in Europe Sun Pharma and Almirall (Spanish company) have announced a licensing agreement on the development and commercialisation of Tildrakizumab for psoriasis in Europe. Under terms of the license agreement, Almirall will pay Sun Pharma an upfront payment of US$50 million. Phase-3 studies of Tildrakizumab have recently been completed. Sun Pharma will be eligible to receive development and regulatory milestone payments and, additionally, sales milestone payments and royalties on net sales. Maharashtra Court directs Sun Pharma release pending wages The Maharashtra Industrial Court in Mumbai has directed Sun Pharma to immediately release the pending wages of 86 employees, who joined Sun Pharma after its merger with Ranbaxy Lab. Cadila’s Gujarat facility receives EIR from USFDA Cadila’s topical manufacturing facility at Changodar, Ahmedabad, has received Establishment Inspection Report (EIR) from the USFDA following the inspection carried out in March 2016. Natco’s Kothur facility received EIR from the USFDA Natco Pharma manufacturing facility at Kothur Village, Mahbubnagar District, has received Establishment Inspection Report (EIR) from the USFDA following the inspection carried out between February 29 & March 7, 2016. Natco’s Chennai facility receives EIR from USFDA Natco Pharma has received establishment inspection report (EIR) from the USFDA for the inspection conducted in February 8-12, 2016, at the Chemical Division, Chennai.
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Competition Commission slaps penalty of ~| 73 crore on Lupin As per media, the Competition Commission of India has slapped a penalty of ~| 73 crore on Lupin and its two officials for indulging in unfair business practices with regard to supply of medicines in Karnataka. Others
Glenmark sells US$ bonds, raises US$200 million through US$ bonds Glenmark Pharma has raised US$200 million through five years non call three year senior unsecured notes offering at 4.5% per annum, due 2021 (2016 notes). The bonds were oversubscribed eight times while notes have been rated BB and BB by S&P and Fitch, respectively. The proceeds from the issuance and sale of notes will be used for investment in Glenmark's subsidiaries. Q1FY17 Results
Ajanta Pharma registers strongest ever gross margins Revenues grew 20.4% YoY to | 471 crore on the back of 18.6% growth in exports to | 287 crore. Domestic sales grew 9.5% to | 162 crore. EBITDA margins increased 406 bps YoY to 35.4% on account of gross margin expansion. Gross margins increased 532 bps YoY to 78.9%. EBITDA increased 36.0% YoY to | 166.6 crore. Net profit increased 33.5% YoY to | 120 crore, on the back of a robust operational performance. Alembic Pharma - gAbilify drives Q1; investment mode to continue Revenues grew 24.8% YoY to | 728 crore on account of continuous windfall gains from gAbilify sales in the US. Export sales grew 75.2% to | 308.5 crore. Domestic branded formulation sales grew 5.7% to | 277.7 crore on the back of 16% growth in the speciality portfolio. EBITDA margins improved 407 bps YoY to 21.6% owing to robust margin from gAbilify sales. EBITDA grew 53.8% YoY to | 157.0 crore. Net profit grew 48.4% YoY to | 103.6 crore owing to a robust operational performance. Aurobindo - In line results; US driven growth continues Revenues grew 12.9% YoY to | 3725.9 crore on account of 20.5% growth in the US to | 1703.9 crore. The Europe business grew 12.1% to | 831.2 crore. EBITDA margins increased 188 bps YoY to 23.9% mainly on account of an improvement in gross margins. Net profit grew 23.8% YoY to | 585.0 crore mainly due to a better operational performance. Biocon witnesses robust growth in branded business, biosimilars Revenues grew 20.7% YoY to | 982 crore mainly due to 41.1% YoY growth in branded formulations to | 158 crore, 70.8% growth in biologics to | 123 crore and 17.4% growth in Syngene to | 263 crore. Growth in branded formulations was due to conversion from IGAAP to Ind AS. EBITDA margins improved 119 bps YoY to 26.8% mainly due to lower other expenditure. Net profit increased 34.2% to | 161 crore on account of a better operational performance. Cadila Healthcare - US de-growth drags numbers Revenues declined 4.0% YoY to | 2287.1 crore due to 14% YoY de-growth in the US to | 848.3 crore. Domestic formulations grew 6.2% YoY to | 786.2 crore. EBITDA margins declined 134 bps to 22.9% on account of higher employee cost. EBITDA declined 9.3% YoY to | 523.9 crore PAT declined 22.6% YoY to | 356.2 crore mainly due to a lower-than-expected operational performance and higher taxation. Cipla - High gNexium base mars Q1 Revenues de-grew 6.4% YoY to | 3593.7 crore, on account of the high base of gNexium sales. US sales de-grew 21.2% YoY to | 657 crore. Domestic formulation grew ~5% YoY to | 1449 crore. EBITDA margins declined 1047 bps to 17% mainly on account of high gNexium base. EBITDA de-grew
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42.1% YoY to | 611.0 crore. Net profit de-grew 43.7% YoY to | 365.2 crore, mainly on account of the base effect. Divi’s Lab - witnesses strong growth with sharp improvement in margins Revenues grew 24.6% YoY to | 1008.1 crore due to ~26% growth in generic business to | 501 crore and ~22% growth in custom synthesis (CS) business to | 443 crore. EBITDA margins increased 273 bps YoY to 40% mainly due to a better product mix. EBITDA increased ~34% YoY to | 403.8 crore. Net profit witnessed YoY increase of ~23% to | 301.8 crore owing to a strong operational performance. Dr Reddy’s Lab- Performance stumbles on US slumps Revenues declined 13.9% YoY to | 3235 crore mainly due to 16.2% decline in US sales. The US sales decline was primarily on account of increased competition in gValcyte and gVidaza. RoW sales declined 52.7% YoY to | 128 crore primarily on account of zero sales in Venezuela. EBITDA margins declined to 12.0% against 26.6% in Q1FY16 on account of higher operational expenditure across the board and lower realisation. EBITDA declined 61.2% to | 387 crore. Net profit fell 80.8% to | 119 crore mainly due to lower operational performance and higher taxation. Glenmark Pharma - US driven growth continues Revenues grew 17.9% YoY to | 1943.1 crore mainly due to 24.4% YoY growth in the US to | 698.2 crore. India business grew 10.4% YoY to | 513.8 crore. EBITDA margins declined 230 bps YoY to 19.5% due to lower gross margins, higher employee cost. EBITDA rose mere 5.5% YoY to | 379.1 crore. Adjusted net profit increased 24.0% YoY to | 226.8 crore mainly due to | 50 crore of forex gain in the quarter. Indoco Remedies – US drives revenue; though margin pressure persists Revenues grew 15.2% YoY to | 257.4 crore mainly due to 18.4% YoY growth in export formulations to | 92.3 crore. Domestic formulations grew 12.7% to | 142.1 crore. EBITDA margins declined 238 bps YoY to 16.2% mainly on account of an increase in employee expenditure and R&D spend. EBITDA grew a mere 0.5% to | 41.8 crore. Net profit grew 2.7% YoY to | 19.8 crore. Growth in net profit was mainly on account of lower taxation. Ipca Lab - Export formulations register solid growth Revenues grew 11.1% YoY to | 842 crore mainly due to ~22% YoY growth in export formulations to | 274.8 crore. Domestic formulations grew 8.5% to | 345 crore. EBITDA margins increased 442 bps YoY to 15.3%, on account of an improvement in gross margins and lower other expenditure. EBITDA grew 56.4% to | 129 crore. Adjusted net profit grew 95% YoY to | 53 crore due to incremental EBITDA and lower depreciation. Jubilant Life - Demonstrates strongest ever margin performance Revenues de-grew 1.8% YoY to | 1420 crore. Revenues in the pharmaceutical business (including drug discovery segment) grew 10.1% YoY to | 802 crore while life science ingredients (LSI) revenues de-grew 13.9% YoY to | 618. De-growth in the LSI segment was mainly due to lower crude prices and optical focus on profitable products. EBITDA margins increased ~345 bps YoY to 25.9% on the back of 180 bps increase in both pharmaceutical and LSI margins to 34% and 19%, respectively. Adjusted net profit grew 22.8% to | 162 crore due to better operational performance and lower interest cost. Lupin - Demonstrates strong gross margins and robust US growth Revenues grew 40.7% YoY to | 4439.4 crore mainly due to 83.8% growth in US sales to | 2188.6 crore. Strong US sales were due to Gavis consolidation, robust sales in Metformin (anti-diabetic). Domestic sales grew 5.2% YoY to | 931.3 crore. EBITDA margins improved 333 bps YoY to 29.5% mainly on account of a strong gross margin performance. EBITDA grew 58.6% YoY to | 1308.0 crore. Net profit grew 55.1% YoY to | 882.0 crore owing to a strong operational performance.
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Natco Pharma - Hepatitis C group continues to drive numbers Revenues grew 45.4% YoY to | 325.2 crore due to strong traction from Hepatitis-C segment (300% growth to ~| 135 crore). EBITDA margins declined 186 bps YoY to 23.8% mainly on account of higher other expenditure. EBITDA grew 34.8% to | 77.3 crore. Adjusted net profit increased 69.8% YoY to | 47.7 crore on account of lower finance costs, depreciation and high other income. Sun Pharma - Base business expansion amid gGleevec exclusivity Revenues grew ~22% YoY to | 8243 crore on account of 32% increase in US sales to | 3910 crore. US sales growth can be attributed to gGleevec (oncology) exclusivity. Domestic sales grew ~8% YoY to | 1854 crore. EBITDA margins increased 929 bps YoY to 35.4% mainly due to lower base and exclusivity of gGleevec. Taro Pharma’s EBITDA margins declined 165 bps YoY to 62.6%. EBITDA grew 65.2% YoY to | 2921 crore. Net profit grew 64% YoY | 2034 crore mainly due to a strong operational performance. Syngene International - Growth tempo maintained albeit at lower gear Revenues grew 17.5% YoY to | 274.5 crore mainly due to growth in the discovery services vertical and development and manufacturing group. Adjusting for the impact of sales return, growth would have been 22.5%. EBITDA margins declined 120 bps to 32.3% YoY owing to higher employee cost and other expenditure, which was partially offset by improvement in gross margins. EBITDA grew 13.3% to | 88.8 crore. Net profit increased 28.1% to | 59.7 crore mainly due to higher other income. Other income increased to | 15.9 crore from | 2.1 crore/| 2.7 crore in Q1FY16, Q4FY16. Torrent Pharma - Base effect impacts Q1 Revenues declined 20.6% YoY to | 1545 crore mainly due to 51.1% YoY de-growth in the US to | 434 crore. The decline in US sales was due to the high base of gAbilify exclusivity in Q1FY16. EBITDA margins declined 1840 bps to 28.3%. EBITDA fell 51.9% YoY to | 437 crore Net profit fell 35% YoY to | 292.0 crore. Unichem Lab - Impressive formulation growth Revenues grew 9.5% YoY to | 342.0 crore on account of 12.5% YoY growth in domestic sales to | 221.5 crore and 16.7% growth in export sales to | 97.1 crore. De-growth in APIs growth (down 25% YoY), however, pulled down the numbers a bit. EBITDA margins declined 80 bps YoY to 12.9% mainly due to higher employee cost and provision for diminution in the Brazilian subsidiary. Net profit witnessed a YoY decline of 11.1% to | 25.8 crore mainly due to higher taxation.
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Q1FY17 Results Review
The Q1 earnings season concluded on expected line with US focused generic players more or less managing to overcome pricing pressure with exclusivities and higher volumes. I-direct pharma universe registered YoY revenue growth of 9.4% to | 35662 crore, driven by 15.2% YoY growth to | 11496 in the US and 7.6% YoY growth to | 7863 crore in domestic formulations (select pack). EBITDA for the universe grew 7.2% YoY to | 8579 crore. Lower growth vis-à-vis revenues can be attributed to higher R&D spend and remedial costs. Adjusted net profit grew 8.5% YoY to | 5919 crore. Adoption of new accounting standard (Ind-AS) also had an impact on the quarterly performance.
Source: Company, ICICIdirect.com Research, LP: Loss to Profit
On the revenue front, Natco (46% growth) and Lupin (41% growth) were the standout performers. Natco’s revenues were largely driven by robust growth in Hepatitis C segment while Lupin benefited from exclusivity sales in the US. Alembic, Divi’s, Sun, Biocon and Ajanta also reported more than
20% growth. On the other hand, Dr Reddy’s, Torrent and Cipla reported negative growth mainly due to high base and price erosion in the US. US growth was driven by limited competition opportunities/exclusivities at Lupin from gGlumetza and gFortamet (anti-diabetic) and Sun from gGleevec (anti-cancer). Note that US growth has not captured gNexium (GI) impact for Cipla and gAbilify for Alembic for non-disclosure of specific traction. Aurobindo and Glenmark also registered strong YoY growth whereas Torrent, Cadila and DRL were laggards on account of base effect, slowdown in product approvals and regulatory issues. Domestic growth was largely impacted by ongoing NLEM/FDC related issues. Biocon, Ajanta, Unichem and Indoco witnessed decent growth.
Exhibit 7: Trends in EBITDA & PAT margin of I-Direct Healthcare Universe
26.3 25.8 25.4 23.925.8
16.7 15.6 16.2 14.516.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17
EBITDA Margins (%) PAT Margins (%)
Source: Company, ICICIdirect.com, Research
ICICI Securities Ltd. | Retail Equity Research
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Exhibit 8: Deviation from estimates / Change in outlook post Q1FY17 numbers [5
Company Initial Rating Current RatingDeviation from
estimates RemarksAjanta Pharma BUY HOLD Above Better-than-expected on the profitability front
Alembic Pharma BUY HOLD Above Higher-Than-expected gAbilify sales in the US
Aurobindo Pharma BUY BUY Inline
Biocon HOLD BUY Above Higher-than-expected branded Formulation and biosimilar sales. EBITDA margins were also better-than-expected mainly due to improvement in gross margins and lower other expenditure
Cadila Healthcare BUY BUY Below mainly due to lower than expected US sales. EBITDA margins were lower-than-expected mainly due to higher employee cost
Cipla BUY HOLD Above Revenues were in-line, while Margins were better-than-expected mainly due to lower-than-expected other expenditure
Divi's labs BUY BUY Above Higher than expected sales in generic business
Dr Reddy's Labs BUY HOLD Below Q1 was largely impacted by decline in US sales primarily on account of increased competition in gValcyte and gVidaza
Glenmark Pharma BUY BUY Below Numbers were below I-direct estimates on account of lower-than-estimated offtake in Europe and LatAm as well as EBITDA margins.
Indoco Remedies BUY BUY Below Miss in margins was mainly due to lower gross margins and higher employee expenses
Ipca labs BUY BUY Inline
Jubilant Life Sciences BUY BUY Mixed bag Revenues were lower than I-direct estimates while profitability was higher than I-direct estimates
Lupin BUY BUY Below Miss vis-à-vis I-Direct expectation was mainly due to lower US sales and one-off inventory adjustment in the US
Natco Pharma BUY BUY Inline
Sun Pharma HOLD BUY Above Beat vis-à-vis our expectation was due to higher than expected US base business sales and lower-than-expected employee cost and other expenditure
Torrent Pharma BUY BUY Below Numbers were lower-than-expected on the profitability front while revenues were in line
IPM grows 9.5% in July • The Indian pharmaceutical market (IPM) grew 9.5% YoY to | 9125 crore
for July. Growth was driven by price hikes- 3.3%, new product launches- 3.1% and volumes increase by 3.2%
• Fixed dosage combination (FDCs) related market de-grew 3.9% to | 234 crore
• Drugs under NLEM list increased 1.6% to | 1061 crore while non-NLEM drugs posted growth of 11.2% to | 7677 crore. Volume growth in NLEM and non-NLEM was 11.0% and 4.2%, respectively
• Among companies under I-direct coverage, Natco, Indoco, Ipca, Alembic and Unichem have registered robust growth of 33.2%, 27.8%, 18.1%, 18.0% and 17.3% respectively. Cipla, Glenmark, Lupin and Sun registered growth of 8.9%, 8.5%, 7.8%, and 7.8% respectively.
• Therapy wise, eight therapies have outpaced IPM growth. Notable among them with growth rates- Respiratory—27.2%, anti-infective – 14.9%, Vaccine – 12.6%, anti malarial – 11.1% and anti-diabetic —10.1%
• In all, 431 new brands were launched in July 2016 • On a MAT basis, IPM growth was at 10.3% YoY to | 100896 crore.
Domestic companies have grown 10.9% while MNC companies have grown 5.0% in July 2016
Exhibit 10: Domestic formulations - growth trend
14.3
14.3
13.5 14
.8
14.5
11.214.4 14
.2
13.7
20 11.5
10.5
10.3
-5
0
5
10
15
20
25
Jul-1
5
Aug-
15
Sep-
15
Oct-1
5
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
(%)
Indian Pharma Market
[
Source: AIOCD data base, ICICIdirect.com Research
Exhibit 11: Companies growth in domestic market in July, 2016
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