Indian drug companies expected to sustain margin improvement

India business is bouncing back aided by favourable exchange rates

Earnings momentum is expected to continue for Indian pharmaceutical majors, with robust top line growth and improving profitability. Gross margin has been rising over the past few quarters, as US is growing in scale with more productive launches, while the India business is bouncing back aided by a favourable currency.

This has enabled higher investments in R&D and has also led to structural improvement in EBITDA margin. Steady margins in the second quarter of 2015 would lend credence to the thesis that Indian pharma has moved up the value chain in the US, according to analysts.

Sun Pharma, Ranbaxy and Torrent are expected to report strong earnings. In June, Taro hiked prices of clobetasol, clotrimazole, warfarin and carbamazepine, which are set to drive Q2 earnings in the 2015 financial year. Ranbaxy is also expected to benefit from the Diovan FTF (first to file) launch in July 2014. Analysts have said improvement in margins are expected to continue.

Divis Laboratories is also expected to report a strong quarter owing to Diovan API supplies to Ranbaxy during the 180-day exclusivity period, while Torrent’s earnings are expected to drop with the Cymbalta exclusivity ending. However, the consolidation of Elder’s acquired business would help cushion its profitability.

Cipla has also witnessed better-than-expected margin improvement in the first quarter of the new financial year, and this is expected to continue. The company is also expected to gain from its partnership with Teva for Baraclude. Teva launched it with 180 day exclusivity.

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