It was a difficult first quarter for the pharma companies. The weakness was mainly due to weak US sales resulting in margin pressure and in Q2, Indian pharma companies are likely to report muted earnings, mainly on account of a high base, US price pressure, and COVID-19 tailwinds petering off.
To talk about the second-quarter earnings for the pharma pack, CNBC-TV18 caught up with Nithya Balasubramanian, director of Sanford Bernstein.
Talking about the input cost pressure and impact on margins, she said there are two reasons for that, one is API costs have seen some increase in terms of the key starting materials and even the API's if they are imported from China. Second, there has also been a lot of disruption in logistics, there was port closure in China, there was a hurricane in the US and all of this would serve to increase logistics costs pretty meaningfully during the quarter.
However, some companies have been able to manage the margins, while distribution costs could have gone up. They have been able to extract savings somewhere else and so it might not hurt their EBITDA as much. But it remains to be seen because in this particular quarter distribution costs were a concern, she said.
When asked what could be the next trigger that an investor needs to keep an eye on, she said in the short term when it comes to the India domestic exposure one thing to watch out for would be the extent of recovery. Acute therapies in particular were a big drag in FY21. So, companies with higher exposure to acute therapies we are expecting should do well, since we are seeing pretty significant recovery inpatient demand. So that would be Dr Reddy’s, Alkem, Cipla. For Cipla, both acute therapies as well as respiratory therapies, which again is almost 30 percent of their India sales were a big drag in FY21. So on that base, as we are seeing patient footfalls come back to normal. These three companies should actually benefit from that tailwind, she added.
“When it comes to the US market, it is back to basics, so it is about what do you have in your pipeline? What new products have you launched? Are there any of these complex products, is it a limited competition opportunity, and your ability to gain market share there is what will drive growth in the US. So, from that perspective again, in our coverage universe, Cipla and Lupin are the ones that have invested pretty meaningfully in complex generics,” she said,
She further said they have always remained bullish on Sun Pharma and the speciality portfolio for the company would be a trigger.
For the entire interview, watch the video