Earnings growth of Ranbaxy, Sun Pharma and Cadila may spoil sector’s quarterly show

Top pharma companies are expected to log a modest double-digit growth in revenues, but flat growth in net profit for the quarter ended June 2011. The first quarter of the fiscal is seasonally a strong quarter for the industry.

However, the high cost of raw materials and wage bill took a toll on profits of these companies. In the absence of exclusivity sales for most companies, revenue growth is likely to reflect the growth in the base business in both domestic and export markets.

The average estimates of leading seven pharma companies by the ET Intelligence Group and three broking firms indicate a drop of 1.7% in aggregate net profits during the quarter ended June 2011 against the year-ago period.

The drop in earnings growth comes on the back of 12-14% fall (estimates) in the profits of large companies like Ranbaxy, Sun Pharma and Cadila Healthcare. The aggregate net sales are expected to grow at a healthy rate of 16.6% YoY supported by increased revenues from Sun Pharma (on account of Taro) and Cadila. The net profit margin may drop by 300 bps to 16.7%.

Sun Pharma is expected to report significantly higher revenues, thanks to the consolidation of Taro. But the higher base of the previous year, in case of earnings, is likely to lead to a drop in profit. Dr Reddy’s Labs is likely to gain on the revenue front with new launches in the US, Indian and Russian markets.

An increased sale through AOK tenders is also going to help increase revenues. A recovery is also expected for contract manufacturing companies like Jubilant Lifesciences, Divi’s Labs and Dishman Pharma. Among mid-sized players, Glenmark Pharma and Ipca Labs are expected to perform well.