Rating: neutral; Pharma sector: Poised for strong growth in Q1FY24



We anticipate a positive performance from our pharmaceutical sector coverage in Q1FY24, driven by improved sales in the US market and strong performance across most branded markets. As the cost pressures gradually ease, we expect to see a robust y-o-y Ebitda growth of 22% (excluding BIOS and Mankind). In the hospital segment, we project a relatively stable performance compared to the previous quarter, with occupancy trends gradually returning to pre-Covid levels. For diagnostic companies, we anticipate a slight increase in non-Covid realisations per patient on a quarterly basis, supported by price hikes and higher volumes of non-Covid tests. Our top picks in the pharma sector are Sun Pharma (SUNP), Mankind, and Cipla. Although recent price increases may limit short-term upside, we maintain a positive outlook on APHS, Rainbow, and KIMS in the healthcare services sector.

Pharma: Improved US, healthy branded markets, yoy margin expansion in store

We expect a healthy Q1FY24 for our pharma coverage aided by improved US generics pricing and strength across most branded markets amid gradual easing of cost pressures. Ex-gRevlimid, we bake in 2% q-o-q and 7% y-o-y growth in US generics sales for relevant companies in our pharma coverage. We expect Dr Reddy’s and Cipla to report US gRevlimid sales of $80 mn and $30 mn. For SUNP, we expect a subdued US performance owing to the Mohali consent decree. In Q1FY24, we build in y-o-y domestic growth of 2-16%. For the API segment, we build in a volume-led recovery on y-o-y as well as q-o-q basis. Similarly, we expect sequentially higher CDMO (contract development and manufacturing organisations) sales for Divi’s and Laurus, with contribution from new non-Covid projects. Owing to the acquisitions by BIOS, TRP and Gland, their y-o-y performances are not comparable. For our pharma coverage, we bake in 13% y-o-y organic growth in Q1FY24.

Hospitals: Steady quarter in store We expect a sequentially steady performance for the India-based hospitals, with lower occupancies being offset by higher ARPOB. For hospitals, we forecast a topline growth of 15% y-o-y in Q1FY24. Overall, we expect an Ebitda growth of 20% y-o-y for our hospitals.

Diagnostics: We expect an uptick in B2C sales growth

Regarding the diagnostic firms, we anticipate a slight increase in non-Covid revenue per patient q-o-q, supported by price adjustments and higher volumes of non-Covid tests. We have factored in a y-o-y growth of 8-12% in non-Covid sales for DLPL and METROHL. We expect a decrease in Covid-related sales for both compared to the last quarter. In Q1FY24, we project a 20% q-o-q Ebitda growth rate for DLPL and a 2% q-o-q growth rate for METROHL. The lower growth rate for METROHL is due to the loss of the NACO contract, which accounted for 4-5% of sales, starting from February 2023.


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