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Healthcare Q4FY21 preview: Recovery in growth to continue

We expect pharma and healthcare companies under our coverage to report moderate growth during the quarter ended Mar’21. Reduced cases and vaccinations in the quarter should support some recovery in acute portfolio and injectable products. US revenues likely to remain stable QoQ with improvement in volumes of injectables and new launches offset by price erosion. We estimate India business to grow in high single digit as seen in secondary sales data. We forecast the EBITDA margin of covered companies at ~19%  led by revenue growth and cost control measures, though would be lower QoQ as costs increase. Hospitals would continue to report recovery in occupancy levels while Diagnostics will report healthy YoY rise on a low base. Overall, we expect our coverage universe to report ~7% revenue growth.

  • India secondary sales: The Indian pharma market witnessed a growth of 5.3% in value terms for Q4FY21. Volumes declined 2.4%, while prices and new introductions grew 5.0% and 2.7%, respectively. We expect primary sales YoY growth for under coverage companies similar or faster than the industry.
  • US generics: We expect US sales to remain flat QoQ in Q4FY21. We expect Cadila, Cipla, Dr Reddy’s, Lupin and Strides to show QoQ growth in US sales led by injectables and new launches. Other companies would post flattish to marginal decline in a stable environment due to lack of new launches.
  • Companies to watch: We expect relatively better results from: 1) Cipla as key products in US grow and benefit from COVID-19 drugs in India; 2) Biocon & Strides with new product launches in the US; 3) Sun with traction in specialty products and 4) Divis lab led by strong demand for APIs from India. Diagnostic companies would report strong growth on low base and aided by COVID-19 tests.
  • Key factors to watch out during management commentary: i) Growth outlook in India for the industry and respective companies, ii) update on restart of USFDA inspections, iii) price scenario in base US business and traction in specialty products, iv) growth in emerging markets with demand outlook and v) sustainability of recovery in diagnostics and hospitals.
  • Key risks: Adverse outcome of USFDA inspections, currency volatility, and inclusion of more products under NLEM in India.

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Pharmaceuticals & Healthcare

ICICI Securities

 

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