Pharma is back on Growth Track. Axis Securities recommends 3 top picks in the Pharma universe

Q2FY24 Pharma Review – Higher Profitability with Easing Price Erosion, New Launches, and Lower RM Prices
Key Highlights & Financial Performance
 In Q2FY24, the Pharma Coverage universe posted robust revenue growth of 14.3%/1.7% YoY/QoQ on account of volume rampup, new launches (especially gRevlimid, gSpiriva, gPrezista), and stabilizing pricing pressure in the US base business.
 EBITDA margin improved by a healthy 210bps/50bps YoY/QoQ amidst normalizing cost inflation and stabilizing prices.
 The US sales were robust, aided by the new launches comprising gRevlimid, gSpiriva, and gPrezista and increased demand for
resilient suppliers amid drug shortages.
 US price erosion is stabilizing due to benefits from drug shortages which are currently at an all-time high.
 Field force expansion is expected to drive volume growth in India. Moreover, growth picked up in Oct’23 and continues to remain
strong in Nov’23.
 Softening input costs and lower freights are improving margins
 Hospitals – Seasonally strong quarter. Brownfield expansion to fuel growth without much dilution in RoCE

Pharma Back on Growth Track
• High Single-digit domestic growth is expected in FY24. Moreover, growth in the US market will remain robust, thanks to the
normalization of prices in the base business and the continued ramp-up of gRevlimid and new product launches (gSpiriva,
gPrezista).
• In the US business, supply constraints have led most business leaders to point to a sharp decline in price erosion, which is
expected to remain low for the remainder of FY24.
• In India, growth has been driven mainly by price increases and strong growth in chronic therapies and all major companies
forecast high single-digit growth in FY24.
• Margins will also improve as RM and freight costs normalize, US price erosion eases, and a better mix is achieved.
• However, USFDA inspections remain an overhang and price erosion in the US is expected to increase once supplies
normalize.
• Therefore, we continue to eye on companies that are focused on launching niche products in the U.S. market and a strong product
mix (Chronic Portfolio) in the Indian market.
• LUPIN, CIPLA, and Aurobindo are our top picks in the Pharma universe