The first quarter of FY20 seems to be showing a positive trend for the India business of pharmaceutical companies that have reported numbers till now.
Barring the likes of Cipla that was impacted due to restructuring in its trade generics segment, most companies have shown 8-9 percent growth. For example, Lupin, which gets 30 percent of its sales from India, saw revenues rise 9.7 percent to Rs 1,307 crore versus last year. Similarly, Torrent Pharma that had Unichem’s portfolio integrated into its domestic business saw sales grow 9 percent year on year (YoY) to Rs 907 crore. Similarly, Eris Life, that gets 100 percent of sales from India, saw its sales grow 9.4 percent YoY to Rs 274 crore.
The stronger India sales were also reflected in Indian multinational companies (MNCS), the Indian arms of large foreign pharmaceutical firms. These companies include GSK Pharma, Pfizer, Astrazeneca and Abbott. India comprises majority of sales for these Indian arms with most of them performing above or in line with their Indian peers. For instance, AstraZeneca reported a revenue growth of 26.7 percent, EBITDA up 283 percent with margins of 17.4 percent and profit growth of over 200 percent. Abbott saw an 18 percnt growth with EBITDA up 57 percent, margins improving to 17.5 percent vs 13.2 percent and profit growth of 42 percent YoY.
On the other hand, Pfizer, Sanofi and GSK all grew in single digits, in line with its Indian peers. Pfizer saw sales up 6.3 percent YoY, Sanofi saw a 9.4 percent YoY growth while GSK saw a 7.1 percent YoY growth in sales. While sales were in single digits, barring Sanofi, both Pfizer and GSK saw improvement in operations. Pfizer EBITDA was up 27.8 percent YoY to Rs 166.2 crore with margins improving 500 bps to 30.5 percent and GSK EBITDA jumping 21 percent with margins of 20 percent vs 18 percent YoY.
Pricing for many of the drugs sold by MNCS are under price control, hence brands become critical. This is most reflective in sales of multinational companies that have a strong brand recall. For example, GSK’s portfolio in India contains household brands such as antibiotic Augmentin, anti-infective cream Betnovate and painkiller Calpol. For Q1FY20, GSK’s key drugs such as Augmentin saw 19.4 percent growth and skin drug T-Bact saw 32 percent growth. Betnovate N sales, however, fell by 4 percent.
Similarly, Pfizer’s portfolio includes multivitamins Becosules, antacid Neksium and digestive drug Gelusil. That is one of the reasons why according to analysts Abbott is expected to have shown strong numbers. Its portfolio includes the popular digestive and gastro drugs such as Digene and Cremaffin and commonly used thyroid drug Thyronorm. While the breakup of Astrazeneca numbers is not known, according to analysts the company’s tie-up with Sun Pharma on key cardio drugs Axcer and Brilinta is expected to have helped.
Multinationals such as GSK are also are undertaking portfolio rationalisations to protect margins, hence aiding profitability. For example, GSK’s gross margins in Q1FY20 improved by 170 bps YoY to 58 percent due to rationalising products leading to a margin expansion of over 21 percent. On the other hand Sanofi, saw its 550 bps YoY and 250 bps QoQ decline in gross margins. Margins were impacted by raw material costs outpacing revenue.While growth is strong for multinationals, the street is cautious. Headwinds such as adverse impact of companies offering generic drugs and Jan Aushadhi initiative by the government do pose a risk.