Cipla, Aurobindo, Torrent are 3 preferred picks of HSBC on healthy Q4 expectations

The strong growth in the US markets led by large product launches has helped drive earnings growth leading to gains for Sun Pharma, Lupin ,Dr Reddy’s  , Aurobindo , Cipla , Torrent  , Zydus and share prices of others too.

The growth in base business in the US that had remained under pressure for many pharmaceutical companies is also showing signs of improvement for Sun Pharma, Lupin ,Dr Reddy’s , Aurobindo , Cipla , Torrent , Zydus and others.

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The domestic growth momentum on the positive side also remains strong led by Chronic segment. Those Pharma companies having higher exposure to acute segment though may be facing some headwinds due to lower growth of acute segment of drugs, nevertheless the strong US growth is cushioning overall earnings of most companies. This is positive for Sun Pharma, Lupin ,Dr Reddy’s , Aurobindo , Cipla , Torrent , Zydus and others share prices.

Analysts at HSBC India Equity Research in the Q4 earnings preview said that they expect good 4Q for most of the names they cover with healthy sales in the US offsetting slow India sales growth.  

HSBC analysts anticipate a respectable quarter where important US launches (such a generics of multiple myeloma treatment drug Revlimid) and steady US generic price balance out unfavorable seasonality in India (domestic) sales.

Also in their opinion, materials costs have mainly stayed constant, while unfavorable geopolitical circumstances may have resulted in some additional freight expenses. 

All this bodes well for operating performance of Sun Pharma, Lupin ,Dr Reddy’s , Aurobindo , Cipla , Torrent , Zydus and other.

Generics of Revlimid should continue to be a significant sales driver in the US market for Dr Reddy’s, Aurobindo, Zydus, Sun Pharma, and Cipla, with considerable quarterly sales growth for Sun and Zydus.

For majority of the companies  in the domestic formulations space, the growth could range from mid single digit to low double digit considering the fact that Indian pharma market in Q4 had grown at a pace of 9.4% year-over-year.

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Alkem Laboratories, Biocon, Alembic, Aurobindo  Cipla , Divi’s Laboratories, Dr Reddy’s, Glenmark, Lupin,  Sun Pharma , Torrent , Zydus Life Sciences are companies under HSBC Coverage Universe.

HSBC analysts expect a 12.5% year on year increase  in revenue, 25.4% rise in earnings before interest tax depreciation and amortisation leading to 38.4% rise in net profit for companies under their pharma coverage.

Analysts at Motilal Oswal Financial Services too expect the pharma companies under their coverage universe to report healthy 34% YoY earnings growth in 4QFY24. They expect aggregate sales to increase 12% YoY for the companies under their coverage, aided by strong traction in the US sales and a healthy performance in the domestic formulation.

HSBC prefers three Buy-rated pharma stocks namely Aurobindo Pharma due to visibility on US generics business including recovery in generic injectables. Torrent Pharma  whose prospects are aided by a strong business model, and Cipla , where concerns are largely priced in for its key awaited US launches.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

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Published: 02 May 2024, 06:03 PM IST