Bracing strong earning season; DRL, Lupin, Sun Pharma and Divi’s in spotlight (July 16, 2012)
The allure of favourable nos. continues this quarter; anticipate sales/profit growth of 32%/40% for our universe (11 companies) with expansion in core OPM. DRL, LPC, SUNP on niche launches, and Divi’s on uptake at DSN expect to remain strong (over 25-35% in sales and 30-50% in profits). Tepid profits resulting from common high tax, features in CDH, JLS, AJP, BIOS. Domestic formulations growth should be better (inds grew ~17% for Apr-May, as per AIOCD). We expect currency impact for 1Q (~34% of PBT), factoring weak INR (c.Rs55.6/US$, down 9% QoQ). Reported nos. most impacted due to forex hit with unhedged foreign currency liabilities (RBXY, JLS, CDH, and Dishman).
Sun Pharma: Expected to be modest barring temporary sales of Lipidox ($38mn)+Stalevo ($9mn). YoY Sales /PAT in 27%/24% approx. Strong Taro results (+ve impact of price increase) but weak DF growth (as highlighted by mgtm in 4Q) may cap any OPM positive surprise. Watch out for F13 Sales guidance revision, update on Doxil supplies by J&J.
Dr. Reddy’s: Stellar sales growth ~35% YoY (led by Plavix, Seroquel generics+Lanzo OTC+continuing Geodon co-exclusivity) incl. base biz. On Geodon, DRL has 30% market share with Fonda share picking up ~25% (W/W 23%). Mgtm highlights pick up in the DF growth (15%).We anticipate marginal MTM forex gain of Rs334mn on CF hedges.
Lupin: 1) Overall number could remain upbeat on Geodon co-exclusivity +Combivir+INR depreciation; Sales growth ~30% (22% ex-Geodon), 2) Tax to normalise ~20% from 4Q of 45% leading to 35% strong PAT growth. 3) Watch out for Indore facility ramp-up+ extent of YoY margin improvement+milestone from Medicis+ launch update on Suprax drops.
Ranbaxy: 1) Expect exceptional F/X loss of $140mn on derivatives/forex loans, 2) Sales/ PAT growth ~ 52%/164% led by rolling FTF’s (Lipitor+Caduet AG; anticipate $130mn in sales on price equalisation, 3) Core margins flat QoQ at 10% with DF growth ~15%, 4) Watch for:C12 sales gui. of $2.2bn, Mohali facility ramp-up, Dewas update, & high interest.
Cadila HC: 1) Expect YoY sales growth of 22% (13% ex- Biochem+Nesher+Bremer) with some margin compression, 2) High tax (~18%) and MTM loss on forex debt to drain PAT growth. However QoQ result to better-off (led by seasonality). Also watch for extent of recovery in DF growth (Wellness biz) YoY and LATAM + any early cost integration benefits.
IPCA: 1Q being seasonally weak quarter expect to report strong YoY Sales/PAT at 15%/34%. DF growth (15%) and tender business will remain strong. MTM forex loss of Rs274mn and weak UK business are other highlights. Watch for FDA approval progress on Indore and mgtm comments on UK generics.
Ajanta: 1Q seasonally being the weak of all quarters expect to report top line growth of 20% with PBT at 33% resp. High tax to impact PAT growth. OP margins to be sustained at ~19%. Mgtm expects US sales billing to happen from 2QF13.
Biocon: 1) From 1Q, recognition of licensing income in topline to discontinue, 2) OPM capped around 24%; as lower R&D cost is nullified by higher staff cost and, 3) Tax rate to revert to MAT rate to weaken earnings 6% YoY (13% ex-LI benefit in 1QF12).
Divi’s: 1) Upbeat to continue on uptake at DSN SEZ facility, 2) Sales/ PAT estimated ~52%/48% with OPM ~37%. Forex gain (Rs163mn) to further accelerate rep. PAT.
Dishman: Despite lack of supplies to Abbott, we expect strong core margins (20%) with Rs143mn in PAT (+37% YoY) driven by improving yields in CA and pickup in J&J contract.
Jubilant Life: Modest topline growth (16%) with OPM of 21% but high tax to PBT (25%) and forex loss on O/s hedges/ECB to result in weak PAT performance.
What we prefer: We retain DRL and LPC as our preferred picks in the large caps followed by SUNP and anticipate a relative outperformance from stock over mid-long term. In the mid-cap, our order of preferences is Divi’s, Ipca and Dishman.
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