Q4FY24 preview: Hospitals, diagnostic firms revenue likely to grow by 13-15%

Indian pharma companies are expected to post a 14-15 per cent year-on-year (YoY) revenue growth in the fourth quarter of financial year 2024, analysts forecast, as they attributed this surge to robust domestic business and benefits from benign price erosion in the US.

The Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) growth is estimated to come in around 22-30 per cent Y-o-Y by several brokerages.

Meanwhile, as the fourth quarter is seasonally better for healthcare and diagnostic companies, revenues for hospitals and diagnostic companies overall is expected to grow by 13-15 per cent Y-o-Y, while the Ebitda is expected to grow by 25 per cent or so.

Nuvama Institutional Equities noted that generic Revlimid (used to treat multiple myeloma) will boost players like Natco, Zydus Lifesciences, Sun Pharmaceutical Industries, Dr Reddy’s Laboratories (DRL), Aurobindo etc.

Secondly, the analysts felt that benign price erosion in the US market will benefit generic players like Aurobindo.

At the same time, domestic business is expected to grow by 11 per cent Y-o-Y during the quarter, therefore, companies that have a strong India market presence like Torrent Pharma, Sun Pharma would tend to benefit from their chronic portfolios and addition of sales force.

The acute therapy or anti-infectives growth is expected to remain flat and that can affect Alkem which is an acute-therapy focused company in the domestic market. Overall, lower active pharmaceutical prices will improve gross margins Y-o-Y, Nuvama said.

Prabhudas Lilladher analysts say, “We expect pharmaceuticals companies under our coverage to report another strong quarter with EBITDA growth of 22 per cent Y-o-Y (down 3 per cent Quarter on Quarter) mainly aided by new launches (generic Revlimid, generic Spiriva, etc) in US market; steady domestic business and higher margins.”

Analysts also expect the quarter to continue seeing easing of cost pressures which will thereby aid margins Y-o-Y.

The companies are likely to witness steady base business in the US given a stable generic pricing environment coupled with new launches. On domestic formulation business, given seasonal weakness, acute and trade generic business may remain soft while chronic business may see steady growth.

Prabhudas Lilladher analysts expect Sun Pharma to report Ebitda growth of 9 per cent Y-o-Y led by continued momentum in the specialty portfolio.

While Cipla and Zydus Lifesciences are expected to report 9 per cent and 17 per cent Ebitda growth respectively. The firm’s analysts said that companies like Divi’s Laboratories and Zydus Lifesciences will see sequential growth in margins aided by better product mix and higher generic Revlimid sales respectively. On the other hand, ARBP may see a dip in margins Q-o-Q given the impact of the Eugia plant shutdown.

Analysts of Motilal Oswal Financial Services (MOSL) expect a 34 per cent Y-o-Y earnings growth in the Q4FY24 for pharma companies under its coverage and aggregate sales to increase 12 per cent aided by strong traction in the US as well as domestic formulations business. EBITDA is likely to deliver 25 per cent Y-o-Y growth fueled by a higher share of niche launches in the US generics.

However, the US sales of Torrent Pharma and Glenmark Pharma are expected to decline 11% and 5 per cent Y-o-Y, respectively, for the quarter due to a lack of new approvals and launches, MOSL said.

For the 12 months ended February 2024, Indian Pharma Market (IPM) grew 9 per cent Y-o-Y, led by price hikes (4 per cent Y-o-Y) and growth in new product launches (3 per cent Y-o-Y), supported by 2 per cent Y-o-Y volume growth. Chronic therapies (38 per cent of IPM) grew 10 per cent Y-o-Y, while acute therapies (62 per cent of IPM) rose 8 per cent Y-o-Y for 12 months ended Feb 2024.

MOSL analysts said that for hospitals, they expected profitability to improve due to the addition of beds and optimisation of the case mix or payor mix. For hospitals under their coverage they expect 15 per cent revenue growth.

“The revision in health scheme patient realisation and increased share of high-end treatment would drive 7-10 per cent Y-o-Y growth in average revenue per occupied bed (ARPOB) for the quarter. The occupancy is expected to be 65-72 per cent for hospitals under our coverage,” MOSL said.

Nuvama analysts, however, expect mixed trends for hospitals in Q4FY24.

As for Apollo Hospitals, they don’t expect an improvement in occupancy levels (66 per cent) Q-o-Q on long holidays in Jan-March 2024. Therefore, Apollo’s hospital margins are expected to be down 20 bps Q-o-Q at 23.6 per cent due to increased marketing and doctor cost. Fortis Healthcare is expected to post 10 per cent growth in hospital revenue and 8 per cent rise in ARPOB and also occupancy levels are estimated to increase from 64 per cent in Q3FY24 to 67 per cent in Q4FY24. In the diagnostics space – Metropolis (15 per cent), Vijaya (16 per cent) growth Y-o-Y in revenue may outperform Dr Lal Pathlabs (12 percent) growth. Business Standard