Pharmaceuticals

Expect Double Digit growth for India business – Torrent Pharma

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the red at 16,854 (-0.5%), dragged by KOTAKBANK (-3.5%), SUNPHARMA (-2.6%), and HDFC (-1.8%). Some of the gainers were ONGC (+5.2%), NTPC (+4.4%), and M&M (+3.4%).

Among the sectoral indices, REALTY (+2%), MEDIA (+1.5%), and METAL (+1.3%) led the gainers, and NIFTY PSU BANK (-1%), NIFTY BANK (-1.0%) and NIFTY FINANCIAL SERVICES (-0.9%) led the losers.

Excerpts of an interview with Mr. Sudhir Menon, CFO & ED, Torrent Pharma (TORRENT) with CNBCTV18 on 27th May 2022:

  • In 4QFY22, TORRENT reported an EBITDA margin of 26.3% as compared to 25.5% in 3QFY22. 3QFY22 was impacted on account of higher than expected price erosion in the US. TORRENT believes that the worst has already happened for the US.
  • IN FY23, TORRENT expects certain margin levers to play out. A few of these levers could be the price increase-driven margin improvement in the Branded Business which contributes 70% of overall revenues as of 4QFY22.
  • Certain cost optimization measures were undertaken in 4QFY22 by realigning capacities between its facilities in India which are expected to come through from 1QFY23.
  • Cash burn impact of 1-1.5% on the liquid facility which was discontinued in the US is expected to roll back into the margins.
  • There was an impact of increased freight expenses on the margins of 1.2-1.3% in 3QFY22 which continued in 4QFY22. TORRENT expects these costs to normalize over the next 2-3 quarters of FY23.
  • Overall, revenue growth in FY23 is expected to be better than FY22 and that would enable TORRENT to have operating leverage play out positively in the near term. TORRENT has guided for 300 bps margin improvement in FY23.
  • Acquisition of Dr. Reddy’s Laboratories’ 4 brands would help fill up the portfolio gap in gynecology and urology. As per AIOCD (All Indian Origin Chemists & Distributors) data set, the 4 brands combined had a revenue of Rs 450-500 mn.
  • India business registered 15% revenue growth in FY22 and most of the existing therapies TORRENT has outperformed the market.
  • TORRENT is growing at 2x of the market growth in therapies like GI (Gastro-Intestinal), CNS (Central Nervous System), and Anti-Diabetics and this is expected to continue.
  • It expects the Indian market to deliver low double-digit growth over the next two years and TORRENT is expected to grow 200 bps above the market as per its historical trend as it is over-indexed in some of the high growth markets.
  • One of the objectives TORRENT had taken was to achieve the 10 lakh MR (Medical Representatives) productivity in FY22. Now that it has achieved this productivity, TORRENT has been expanding its field force which is expected to bring in incremental revenue growth.
  • The new product pipeline is looking good for the next few years and TORRENT is seeing some of the large-size markets going off-patent in the coming years. With the incremental growth coming in the future, TORRENT believes it is well-placed to achieve double-digit growth for India Business.
  • The US story has not been playing out well for TORRENT because of the new launches not coming through due to pending US FDA inspections.
  • TORRENT has around 57 ANDA pending approvals. In the next 2-3 months if the US FDA reinspection takes place, TORRENT expects new products to start coming in from 4QFY23.

Asset Multiplier Comments  

  • The growth trajectory in TORRENT’s India branded generics business is expected to continue, due to new product launches in the upcoming quarters.
  • We expect a revival in tender business and new launches to drive growth in the Germany Business. Brazil is expected to continue its momentum in both the branded and generic segments.
  • With the worst of price erosion in the US business over, an improvement is expected with the resumption of USFDA inspections.
  • We expect cost-optimization measures, normalization in freight expenses, and closure of the Pennsylvania (US) facility to aid margin expansion in FY23.

Consensus Estimates: (Source: market screener website)

  • The closing price of TORRENT was ₹ 2,835 /- as of 31-May-2022.  It traded at 34x/27x the consensus earnings estimate of ₹ 84/ 106/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,194/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 106/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Antiretroviral API sales expected to normalize from 1QFY23 – Laurus Labs

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 17,325 (+0.6%) near the day’s high of 17,344. PHARMA (+1.5%), HEALTHCARE (+1.3%), and CONSUMER DURABLES (+1%) were the top sectoral gainers. MEDIA (-1.2%), PSU BANK (-0.8%), and OIL & GAS (-0.2%) led the sectoral losers. Among the NIFTY50 components, EICHERMOT (+4.5%), HDFC (+3.3%), and DIVISLAB (+3.2%) led the gainers. HEROMOTOCO (-6.7%), ONGC (-3%), and COALINDIA (-2.7%) led the losers.

Laurus Labs has been granted a license to manufacture Molnupiravir and Paxlovid, the COVID drugs from the Medicines Patent Pool (MPP).

Excerpts of an interview with Dr. Satyanarayana Chava, founder, and CEO, Laurus Labs (LAURUSLABS), with CNBC-TV18 on 28th March 2022:

  • To treat the COVID virus Paxlovid is a more effective drug compared to Molnupiravir. As the number of cases in Asia except in China and Africa is declining significantly.
  • On opportunity, Mr. Chava said, as an API or formulation for Paxlovid company didn’t see a great opportunity in the emerging markets. As the company got the license, they are preparing themselves to grab the opportunity available to them.
  • Mr. Chava added it will take 3 to 4 months for the company to file for regulatory approval after that it will see a clear picture of the opportunity for the company. It’s too early to comment on the opportunity and currently, the company doesn’t see any visibility.
  • Logistics challenges from China and higher prices of petrol-driven solvents are impacting margins but due to the company’s scale, it can manage the impact better than its peers. The company has the challenge of passing higher input costs to customers.
  • On the margins front, the Company can maintain its EBITDA margin of ~30% and the company expects despite the input cost challenges company will be able to manage its margins.
  • The company has 11 final approvals and several tentative approvals for antiretroviral to sell in low and middle-income country (LMIC) markets. The company expects two more final approvals lined up in the coming months.
  • In FY22 company has a challenge in antiretroviral API sales but the company expects 4QFY22 will be a better quarter. From 1QFY23 onwards company expects normalcy in API sales. It also got new approvals in the formulation and it expanded its geographies for formulations and custom synthesis business also performing well.
  • The company expects growth in all divisions in FY23 and is targeting revenue of USD 1bn by FY23.
  • LAURUSLAB received an order from a Global Life Science company in February 2022. The company has started its supplies and is preparing to produce larger quantities in the coming quarters and also the company is well-positioned to deliver its order.

Asset Multiplier Comments

  • We believe that the recent approvals to LAURUSLAB for Molnupiravir and Paxlovid are not likely to add any major incremental revenues as covid cases subside and peers of LAURUSLABS also got the approval for the same drug and this might not add any competitive advantage for the LAURUSLAB.
  • We expect that the issues in antiretroviral API sales to be normalized from 1QFY23 with continuous improvement but lockdowns in China and geopolitical tensions are leading to higher input costs that can put pressure on margins in the shorter term.

Consensus Estimate: (Source: market screener website)

  • The closing price of LAURUSLABS was ₹ 592/- as of 28-March-2022. It traded at 28x/22x the consensus earnings estimate of ₹ 21/ 27/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 575/- implies a P/E Multiple of 21x on the FY24E EPS estimate of ₹ 27/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Confident of delivering double-digit growth for India business- Zydus Lifesciences

Update on the Indian Equity Market:

On Thursday, NIFTY settled at 17,223 (-0.1%) near the day’s high of 17,291. MEDIA (+6%), METAL (+1.5%), and IT (+1.2%) were the top sectoral gainers. PRIVATE BANK (-1.8%), BANK (-1.7%), and CONSUMER DURABLES (-1.6%) led the sectoral losers. Among the NIFTY50 components, DRREDDY (+4.7%), COALINDIA (+2%), and ULTRACEMCO (+1.8%) led the gainers. KOTAKBANK (-3%), TITAN (-2.6%), and HDFCBANK (-2.5%) led the losers.

Excerpts of an interview with Mr. Sharvil Patel, MD, Zydus Lifesciences (ZYDUSLIFE) with CNBC-TV18 on 24th March 2022:

  • In the US, the generic business has always been cyclical and it needs to be seen in a three-to-five-year window. They believe any company with a very strong portfolio and good cost management and backward integration capabilities can do well in the US market.
  • Mr. Patel believes that the US generic market is a very large opportunity that exists and the volumes are very large as well which makes it an opportunity worth taking effort for.
  • For ZYDUSLIFE, the pricing pressures are expected to continue and one has to constantly optimize costs, and build efficiencies through larger scale and backward integration. This is what ZYDUSLIFE is doing in terms of operational efficiencies as well as sourcing efficiencies.
  • In the next 18 months, ZYDUSLIFE is expected to have a very good portfolio of generic launches that will help it cross the current USD 700-800 mn revenue range that it is at and come closer to a billion-dollar revenue range.
  • Once it has a resolution for one of its facilities as well as more important launches in FY24, ZYDUSLIFE will be on an upward trajectory for its US generic business.
  • For India business, ZYDUSLIFE has taken efforts to reduce complexity both in terms of the large portfolio and the way its business units were formed. With a lot of restructuring, it is at a stage where the focus is on the top 30 molecules with the new introductions on the proprietary molecule side.
  • ZYDUSLIFE is confident about delivering better than market growth and double-digit growth for the India formulations business.
  • It is expected to produce 10 mn doses per month of the Covid vaccine ZyCov-D which means they can vaccinate about 3 mn people. ZYDUSLIFE has submitted a trial of the vaccine for the age group of 12-18 and has received a DCGI (Drugs Controller General of India) approval but is waiting for NTAGI (National Technical Advisory Group on Immunization) clearance.
  • A booster dose strategy has worked out where it has to change vaccines from the earlier vaccination to the next vaccine.
  • Even though ZYDUSLIFE is delayed by 6 months, it believes there is enough room for it to make the vaccine available with a production of 8 to 10 mn doses a month.

Asset Multiplier Comments

  • The US business is expected to ramp up in the next 18 months on the back of new launches and approvals and meet its revenue guidance of USD 1 bn. With its backward-integration capabilities and operational efficiencies, we believe ZYDUSLIFE is well placed to tackle the US pricing pressures.
  • It is working on a pipeline comprising injectables, biosimilars, NCE-led specialties, and vaccines. We expect these to contribute to ZYDUSLIFE’s growth trajectory over subsequent quarters.
  • We expect EBITDA margins to be under pressure due to increased raw material costs.

Consensus Estimate: (Source: market screener website)

  • The closing price of ZYDUSLIFE was ₹ 366/- as of 24-March-2022. It traded at 17x/ 15x the consensus earnings estimate of ₹ 21/ 24/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 482/- implies a P/E Multiple of 20x on FY24E EPS estimate of ₹ 24/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Growth to be driven by entering new geographies– Granules India

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,606 (+0.8%) as it closed near the intraday high of 17,639. Among the sectoral indices, MEDIA (+1.7%), METAL (+1.2%), and FINANCIAL SERVICES (+1.2%) ended higher, whereas AUTO (-0.1%), and PSU BANK (-0.1%) were the losers. Among the stocks, ONGC (+3.6%), TATASTEEL (+2.0%), and INFY (+2.0%) led the gainers while MARUTI (-1.7%), IOC (-0.9%), and SHREECEM (-0.7%) led the losers.

Granules released its 3QFY22 results on 8th February. Following aren the excerpts of an interview with Mr. Krishna Prasad Chigurupati, Chairman and MD of Granules India (GRANULES) with CNBC TV18 on 9th February 2022:

  • The company has been operating at 60% of its production capacity for Paracetamol due to raw material shortages. It sells only APIs (active pharmaceutical ingredients) in India. All of its FDs (finished dosages) are sold in Europe and the US.
  • The company’s FD segment is more profitable than its other segments. The share of FDs as a part of revenues fell by 3-4%. This fall is due to inventory rationalisation by its customers in US. The company states this as one of the reasons that the margins couldn’t improve. The management sees some uptick in FD sales going forward.
  • Paracetamol’s prices have been increased to pass on the raw material price increases to the customers.
  • The freight cost is an important component for the company and the costs haven’t improved in the last 6 months. The freight costs can go as high as 4-5% of the company’s revenues.
  • In FY23, the company will be crossing EBITDA margins of around 20-21%, but it is not confident of achieving the margins of 23%. The company expects to achieve a minimum of 12% growth in revenues by FY23 end.
  • The company received 3 ANDA approvals in the US in 3QFY22. The company expects the market size for their aggregate to be around USD 400-500 mn. The company doesn’t expect any growth in revenues from these products.
  • The company plans to enter new geographical markets such as the Canadian, and South African markets. The company expects its new markets to account for 35-40% of its revenues, instead of 25-30% of total revenue as of now.

 Asset Multiplier Comments

  • The raw material prices for the company’s molecules (core and non-core) and freight costs are likely to stay high for the next 2 quarters. Therefore, we expect the EBITDA margin to be under pressure during this period.
  • As the company’s supplier for Paracetamol-related raw materials is about to start its plant by 15th Feb 2022, we expect the situation of raw material shortage to reduce from March.

Consensus Estimate: (Source: market screener website)

  • The closing price of GRANULES was ₹ 312/- as of 10-February-2022. It traded at 18x/13x/11x the consensus earnings estimates of ₹17/24.2/27.9 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 359 /- implies a P/E Multiple of 13x on FY24E EPS estimate of ₹ 27.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Expect to launch Spiriva in 2HCY22 in the US – Lupin

Update on the Indian Equity Market:

On Monday, NIFTY50 ended in the red amid a broad-based sell-off, ahead of the RBI monetary policy meeting during the week. NIFTY50 ended at 17,214 (-1.7%), dragged by TATACONSUM (-3.9%), LT (-3.6%), and HDFCBANK (-3.5%). POWERGRID (+1.9%), ONGC (+1.3%), and TATASTEEL (+0.7%) led the gainers.

Among the sectoral indices, PSU BANK (+0.9%) was the only one to close in the green. FINANCIAL SERVICES (-2.6%), FINANCIAL SERVICES 25/50 (-2.5%), and PRIVATE BANK (-2.3%) led the laggards.

Lupin announced 3QFY22 results, which were lower than the street estimates. Ms. Vinita Gupta, the CEO, outlined the reasons for the lower revenue growth in Business Standard on 7th February 2022:

  • Respiratory products have become a major growth driver for Lupin in the US. Albuterol has ramped up well over the last few quarters and has a market share of over 20 percent. In Brovana, Lupin has about 45 percent market share. The rest of the business in the US has been stable.
  • In 2HCY22 the company expects to launch a few products such as Spiriva in the US. It also expects to launch the first biosimilar, Pegfilgrastim in the US for which US FDA inspection of the Pune plant is required.
  • The company has shifted production to India for some of its products such as nasal sprays. For some other first-to-file (FTF) products in the US, Lupin is transferring production to some contract manufacturers in India and the US.
  • In 3QFY22, the India business was up 12% YoY due to significant growth in the respiratory products portfolio in 3QFY21. The company launched molnupiravir in the Covid products portfolio. Practicing physicians see molnupiravir as an important part of the regimen.
  • The CEO foresees increasing contribution to the Indian business from the diagnostic business. Lupin has established a national laboratory and has seven centers (clinics) in place- four owned and three are partnered. In FY23, she expects a rapid expansion in both owned and partnered clinics. However, the diagnostic business will be small in the near term in terms of total India business.
  • It has recently announced a partnership with Fancoo for CNS products in China. Lupin is looking forward to getting those products approved and launched in China. It is also working on the respiratory and inhalation pipeline (products developed for the US) which provides an opportunity in China.
  • Apart from the US, Lupin is present in the UK, Canada, Australia. It has a presence in Japan through its partner and is working on more partnerships to have a pipeline of complex generics and biosimilars.
  • In Europe, Lupin is focusing on Germany, the UK, and France and has a big respiratory pipeline in Europe.
  • In Australia, it has acquired Southern Cross Pharma which will make Lupin among the top three generic players in the market.
  • About 25% of the raw materials are imported. The company is self-sufficient in terms of APIs and other materials. The company is trying to reduce the dependence on China by increasing suppliers in India. The CEO believes the PLI scheme will help to develop a more self-reliant supply chain.

 Asset Multiplier comments:

  • The entire pharmaceutical industry is impacted due to supply chain bottlenecks which are impacting margins. Reduced dependency on China, and building domestic capabilities are likely to aid margin recovery in the medium term.
  • Lupin’s 3QFY22 performance was impacted by higher price erosion in the US and raw material cost. While this is expected to impact the performance in the near term, the early launch of key products such as Spiriva is likely to provide some relief to investors.

Consensus Estimate: (Source: Market Screener website)

  • The closing price of LUPIN was ₹ 804/- as of 7-February-2022.  It traded at 21x/ 16x the consensus EPS estimate of ₹ 38.6/ 50.2/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 977/- which implies a PE multiple of 19x on FY24E EPS of 50.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Product Specific Price Erosion in US Markets – Sun Pharma


Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,560 (-1.2%). Among the sectoral indices IT (-2.1%), REALTY (-1.7%), and FINANCIAL SERVICES (-1.4%) were top losers, and AUTO (+0.4%) and CONSUMER DURABLES (+0.1%) were sectoral gainers. HEROMOTOCO (+2.3%), BAJAJ-AUTO (+2.1%) and DIVISLAB (+0.9%) were the top gainers. HDFC (-3.5%), ONGC (-3.0%), and SBILIFE (-2.9%) were among the top losers.

Excerpts from an interview of Mr. CS Muralidharan, CFO of Sun Pharma, with CNBC-TV18 dated 02nd February 2022:

  • The government’s focus on healthcare initiatives and push for modernisation in the Union Budget 2022 bodes well for the industry, the incentive for manufacturers is something to look for considering the medium-term horizon.
  • US Specialty Revenues for 9MFY2022 exceeded full-year FY2021 Revenues, the growth in revenues was fuelled by contribution from all the products. Winlevi was recently launched in the US in November 2022 is showing good traction.
  • The company is on a very good footing now because they have been focusing on increasing their prescription of core products which has helped the company record good growth in the global specialty business.
  • The company is now increasing its geographical presence across the globe as a part of the strategy to leverage its pipeline across global markets, it recently launched its Derma-Specialty products Illumya and Cequa in Canada which is seeing good traction.
  • Price Erosion in the US has been a product-specific issue for the company as compared to its other peers which have seen pricing erosion across the board. The company has seen pricing erosion in the ex-Taro generic business but it has managed to control the same by leveraging new launches and efficient supply chain management.
  • Global uncertainty around COVID-19, especially the caseload in the US has impacted the company’s ability to give guidance over the medium term. The company has plans to continue its growth momentum by focusing on specialty revenues and Indian business and the rest of the world emerging markets.
  • EBITDA margins are seeing some pressures due to rising costs. However, the company has reiterated that margins will say stable due to increased operational efficiencies and cost-saving measures.
  • Despite strong competitive pressures, the company has consistently managed to improve its market share in the domestic business and outperform the industry growth by a large margin.

Asset Multiplier comments:

  • US Generic Business has been seeing competitive pricing pressures for all pharma manufacturers. Sun Pharma has effectively managed to mitigate pricing pressures due to prudent policies.
  • Domestic India and the Rest of the World Emerging Market Business has seen good traction in the past few quarters, Sun Pharma can leverage its presence to unlock the next stage of the growth cycle in these markets.

Consensus Estimate: (Source: Market screener website)

  • The closing price of Sun Pharma was ₹ 885/- as of 03-February-2022.  It traded at 28x/25x/22x the consensus Earnings per share estimate of ₹ 32/35/40/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 972/- which implies a PE multiple of 24x on FY24E EPS of ₹ 40/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

New launches to offset US pricing pressure- Cipla

Update on the Indian Equity Market:

On Monday, NIFTY closed in the green at 17,339 (+1.4%) ahead of the Budget. Among the sectoral indices, REALTY (+3%), PSU BANK (+3%), and IT (+2.8%) were the top gainers and there were no sectoral losers. TECHM (+5.2%), TATAMOTORS (+4.0%), and WIPRO (+3.8%) were the top gainers. INDUSINBK (-3.5%), KOTAKBANK (-2.0%), and COALINDIA (-1.4%) were among the top losers.

Excerpts from an interview of Mr. Umang Vohra, MD & Global CEO, Cipla (CIPLA) with Economic Times dated 31st January 2022:

  • On the India growth numbers, CIPLA saw strong momentum in the base portfolio and has pre-allocated resources to the bigger brands. As healthcare begins to expand, it saw a large contribution from Tier 1 to 4 towns to the volume growth. It has re-positioned resources on its key branded franchises in India on the back of consumer business playing out strongly.
  • In the US, CIPLA’s respiratory portfolio gained market share resulting in revenues worth US$150 mn. Mr.Vohra said the December quarter always has bunched up sales because that is the buying pattern in the US as there are holidays in the first 7-8 days of January.
  • Launch momentum is going to be significant in FY23 because the US is responsive to it.
  • In South Africa, the market is divided into private and tender. The tender is linked to government buying. The private market has always shown robust growth and CIPLA has been beating the market over the past five years QoQ.
  • There were congestions in the tender market as there are patterns of government buying in response to the Budget of the country. These patterns respond to the aid that the country receives in terms of a portfolio of medicines, in terms of the buying agencies supporting the various governments.
  • The South African tender market is going through a new cycle similar to the one 3 years ago. Despite some shifts due to this cycle, it is expected to go back to the way it was originally.
  • In India, CIPLA sees doctor practice to come back strongly on the back of volume demand.
  • Pricing pressure in the US is expected to continue. It is the nature of the US market. It is a free market and prices fall as more players enter it. CIPLA has responded to these pressures quite significantly and these are expected to continue going forward.
  • The issue of pricing will be there in the US markets but new launches are expected to offset that.

Asset Multiplier comments:

  • The US business is expected to ramp up on the back of new launches and a complex generics portfolio.
  • The revenues were not impacted significantly by US price erosion due to new complex launches and increasing market share. Should the new launches get delayed, CIPLA will be impacted by the pricing pressures in the US.
  • With the decline in COVID-19 products’ contribution, the base portfolio has started growing. We expect this base portfolio to perform well in the coming quarters as the cases start declining.
  • We expect margins to sustain the upward trajectory for the next few quarters as the complex pipeline is strong.

Consensus Estimate: (Source: Market screener and Tikr websites)

  • The closing price of Cipla was ₹ 945/- as of 31-January-2022.  It traded at 27x/23x/20x the consensus earnings per share estimate of ₹ 35/42/50/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,088/- which implies a PE multiple of 22x on FY24E EPS of ₹ 50/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Goa unit accounts for 24-25% of US turnover– Lupin

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,248 (+0.2%), 27 points higher. Among the sectoral indices, IT (+1.2%), CONSUMER DURABLES (+0.4%), and OIL & GAS (+0.3%) led the gainers, while MEDIA (-1.8%), PSU BANK (-1.0%), and PHARMA (-0.9%) led the laggards. Among the NIFTY50 components, BAJFINANCE (+2.9%), INFY (+2.5%), and BPCL (+2%) were the top gainers while HINDALCO (-1.8%), CIPLA (-1.5%), and SUNPHARMA (-1.4%) led the laggards.

Excerpts of an interview with Mr. Ramesh Swaminathan, ED & Global CFO (LUPIN) with CNBC-TV18 on 15th December 2021:

  • The Establishment Inspection Report (EIR) that comes with Voluntary Action Indicated (VAI) means that the warning letter issued in 2017 on Lupin’s Goa plant has been lifted. LUPIN has about 109 products that are yet to be approved by the FDA and 24-25 out of these are from the Goa unit.
  • LUPIN expects a lot more approvals to come through from this unit over the next few weeks.
  • There has been a lag in LUPIN’s top line because approvals were not coming and the company was not able to leverage on the pipeline. LUPIN will launch new products as approvals start coming in from the Goa unit.
  • This unit is important to LUPIN because 24-25% of the US turnover comes from it and more approvals coming through would help elevate LUPIN’s revenues.
  • LUPIN’s other 3 facilities in India at Mandideep, Tarapur, Pithampur-II, and Somerset in the US also received warning letters which have affected their top line. It expects these units to get inspected over the next quarters and eventually contribute to the top line.
  • LUPIN has a rich pipeline but they are also focusing on more complex products in terms of innovations like complex injectables and biosimilars.
  • They already got approval for Albuterol which indicates the progress they have had in inhalation products. They also introduced Brovana and Spiriva is on the anvil and a lot many to come in the inhalation segment.
  • LUPIN’s facilities have been under the radar for the last 3-4 years and they have been constantly working on it. LUPIN believes they are in a state of readiness when it comes to India and they expect satisfactory solutions as and when the authorities inspect these facilities.
  • LUPIN has been working on the common thread that exists between all of its facilities with its team of consultants and is confident in this regard.
  • LUPIN is confident and prepared to launch Spiriva in the second half of FY23.
  • As far as diagnostics are concerned, LUPIN is thinking big in that direction but it’s not going to be the most important for them. A huge chunk of this segment is fragmented and only 20% of it belongs to the organized sector so that leaves vast scope for it to become organized.
  • LUPIN plans to follow a doctor-led scientific proposition with an ABL certificate.

Asset Multiplier Comments

  • Due to travel restrictions imposed by the COVID-19 virus outbreak, the entire pharma industry has been experiencing a delay in its facilities getting inspected. As the travel restrictions have been lifted, the inspections are expected to pick up the pace.
  • Many of the pharma companies have incurred Capex for new facilities or undertaken remediation of the FDA’s observations. As these facilities are yet to be inspected, there has been a lag in terms of contribution to revenues. Once the approvals start coming through, we expect the top line of companies like LUPIN to report good growth.
  • LUPIN has been impacted by the price erosion in its generic segment in the USA. The impact of this is expected to be mitigated as the specialized products are launched.

Consensus Estimate: (Source: market screener and Tikr websites)

  • The closing price of LUPIN was ₹ 904/- as of 16-December-2021.  It traded at 23x/ 17x the EPS estimates of ₹ 40/ 52/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 985 implies a P/E Multiple of 20x on FY24 EPS estimate of ₹ 52/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Expect 15+ USFDA approval in CY22- Alembic Pharma

Update on the Indian Equity Market:

On Monday, NIFTY ended at 17,368 (-0.8%) 143 points lower. Among the sectoral indices, only IT (+0.3%) ended higher, whereas MEDIA (-1.8%), OIL&GAS (-1.4%) and REALTY (-1.4%) led the losers. Among the stocks, AXISBANK (+2.4%), TECHM (+2.2%), and SBILIFE (+1.5%) led the gainers while BAJAJFINANCE (-3.0%), BAJAJFINSERV (-2.1%), and RELIANCE (-1.9%) led the losers.

Pharmaceuticals

Expect 15+ USFDA approval in CY22- Alembic Pharma

Excerpts of an interview with Mr. RK Baheti, CFO of Alembic Pharma with CNBC TV18 on 9th December 2021:

  • Alembic Pharma has received tentative approval from USFDA for Selexipag tablets, a drug used to treat for pulmonary arterial hypertension with a market size of $460 Mn. There are 4 existing players in the market.
  • The company can only bring the drug to the market post its patent expiry so there’s an expected delay before the drug can be formally launched post final approval which will happen in CY23.
  • The company has first mover advantage in terms of launching the product on Day 1 of Patent Expiry, however the situation remains dynamic and other companies may receive approval for the same.
  • The company has an annual run rate of 15+ approvals and the company expects to launch 15 new products in the US in CY22, with 3 Products being first to file by the company.
  • Indian companies are facing intense pricing pressure in the US Generics business, due to heightened competition. Company’s degrowth is drawn by high base effect of last year’s exceptional performance and also drawn by company benefitting from scarcity and aggressive pricing over the past 2-3 years.
  • The growth ahead is expected to be driven by new launches and first to file opportunities as the pricing degrowth will continue by 10% on an annualized basis, the company has plans to stock up inventories in anticipation of shortages to take advantage of aggressive pricing as and when the opportunities arise

 

Asset Multiplier Comments

  • The company along with its peers is facing stiff competitive pricing pressure in the US Generics business, which was a key growth driver for the company in the past few years.
  • The revenue opportunity of new launches, existing competition and cost controls are going to be key drivers of profitability for the company.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Alembic Pharma was ₹ 797/- as on 13-Dec-2021.  It trades at 23x/19x/17x the EPS estimates of ₹ 35/42/47 for FY22E/FY23E/FY24E respectively.
  • The consensus target price is ₹ 860 implying a P/E Multiple of 18x on FY24 EPS Estimate of ₹ 47

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Growth visible across segments, pricing pressure in US a concern – Alembic Pharma

Update on the Indian Equity Market:

The market witnessed the continuation of the bearish movement due to acute turmoil in Chinese stock markets. Nifty was down 37 points or 0.24% at 15,709.

Among the sectoral indices, METAL (+1.22%) AND IT (+0.21%) were gainers while PSU BANK(-1.88%), AUTO (-0.93%) and REALTY (-0.79%) were top losers. Among the stocks, BHARTIARTL (+5.04%), TATASTEEL (+2.81%), and SBILIFE (+2.16%) were the top gainers while KOTAKBANK (-2.59%), DRREDDY (2.55%) and TATAMOTORS (-2.2%) were the top losers.

Alembic Pharma sees growth across segments; says pricing pressure in the US a concern

Edited excerpts of an interview with Mr Pranav Amin, Managing Director at Alembic Pharmaceutical with CNBCTV18 on 28th July 2021:

Alembic Pharma posted its Q1FY22 earnings. EBITDA, margins and profit have all come in below street estimates, the US generics business has seen a steep fall as well. Pranav Amin

  • Street estimates of EBITDA Margin for 1QFY22 were ~23-24% for the quarter v/s actual reported margin of 18%. The market was disappointed with the performance and stock tanked ~11% post results. Mr Amin explained the reason for the margin decline. He said that US business since the last five years has had a CAGR of about 25 per cent. Part of the growth in the US business was due to the Sartan opportunity, where the company did well.
  • Also there have been a lot of disruptions in the market. Since November or December, disruptions were seen and there was a lot of supply in the market, which has led to pricing pressure in the US market. So that is what has broadly caused the dip in the margins for this quarter.
  • US business declined by 38% YoY reason being the price erosion. Volumes were flat but pricing pressure was seen in other products as well other than the sartans in US business which led to the decline in US business.
  • Guidance on US business – In the last 5-6 quarters the average US revenue has been ~$70mn because of the sartans. Moving forward, the company has withdrawn all guidance. As far as the business is concerned, very robust growth is seen in the Indian market and the company expects it to continue.
  • API business grew by 6% YoY in 1QFY22, last year there were a lot of disruptions in API business because of COVID especially from China. The European business also grew very well, last year, had a growth of 13 per cent. So by and large, all the other businesses are doing okay. It’s just the US that is facing pricing pressure.
  • The company has withdrawn the EPS guidance for FY22 because
    • the markets have been quite dynamic, as is seen on some of the pricing in the Sartans and some of the other products.
    • There’s still no clarity on the FDA inspection of new facilities.
    • Competition is witnessed in some of the other larger products of the company.
  • India Business – India Business does not have a COVID-19 related portfolio. COVID-19 has been tougher for Alembic as most of the portfolio was not used for COVID-19 treatment. Speciality and Acute portfolios have shown good growth. The company expects to grow faster than the market.
  • The company has guided investors to launching 15 products in the US and management wants to stick to it. Strategically company is working on cost optimization, renovating portfolio and seeing where volumes can be maximized for some of the products to remain competitive in US markets. The filing and launches are on track.

 Asset Multiplier Comments

  • The near-term outlook remains muted due to significant erosion in US sales which would also weigh on margin. Further, inspections at new plants have been delayed due to COVID-19 which has led to delay in the launches of complex generics
  • The company’s plan to launch 15 products in the US and consistent performance in Indian branded formulations will help Alembic to perform going forward.

Consensus Estimate (Source: tikr. com and market screener websites)

  •  The closing price of Alembic Pharma was ₹ 796/- as of 28-Jul-21. It traded at 21.5x/17.2x/14.6x the consensus EPS estimate of ₹ 37.6/47/55.5 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 965/- implies a PE multiple of 17x on FY24E EPS of ₹ 55.5/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”