Antique Broking bullish on Indian pharma market for FY24, stays negative on US generics 

The brokerage firm sees domestic branded formulations-focused firms’ growth rate in the mid-teen range, driven by a high single-digit increase in prices 

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Antique Stock Broking is optimistic about double-digit growth in the Indian pharmaceutical market in the fiscal year 2024 even as it is negative on the US generics market.

The domestic branded formulations segment is seen as the most promising area for the overall pharma industry, with anticipated mid-teens growth rates driven by pricing and new product launches, the brokerage firm said, adding that Torrent Pharma remains its preferred pick in the sector for FY24.

The growth factors

Antique believes that pharma companies can raise prices by around 10 percent in FY24.

The National List of Essential Medicines (NLEM) makes up almost 18 percent of the Indian Pharma Market (IPM) while the Wholesale Price Index (WPI) is about 12 percent in CY22, which gives pharma firms room to raise prices.

Due to the improved supply chain situation from China and other regions, there may be a fall in raw material prices, leading to an improvement in gross margins for India-focused companies with branded businesses, it said. Additionally, due to high inflation, companies may seek to raise prices for non-NLEM portfolios. Antique anticipates that the IPM growth rate will remain robust in the mid-teen range, driven by a high single-digit increase in prices. As many products will be going off-patent in India, Antique expects that growth from new launches to continue to be healthy.

“We continue to prefer stocks with exposure to domestic formulations over US generics and API companies for FY24. We believe our coverage universe is likely to see stability in margins with a marginal 180 bps improvement on account of healthy growth in Indian business and raw material price moderation. Within our coverage we remain positive on Lupin and Torrent Pharma; and for Cipla and Zydus Life we believe there remains a risk to new product launches and key base business products,” Antique said.

US generics business

The brokerage firm’s outlook on the US pharma sector remains negative, with FY24 expected to be as challenging as FY23, although a silver lining is anticipated in the form of improved gross margins due to lower raw material costs.

The weak niche US generics launch pipeline for companies including Dr Reddy’s Labs, Cipla, Zydus, and Alembic leads to this negative view.

“Most of the companies under our coverage are unlikely to showcase meaningful margins expansion, and the earnings projection is unlikely to see any material upgrades in FY24, thereby creating headwinds for stock prices to move higher. We continue to prefer India formulations-focused companies over large caps having reasonable exposure to US generics,” the Antique report said.

In FY24, the brokerage firm also does not foresee any respite from increased competition in dosage forms such as OSDs, Transdermal, and Topicals, which account for most of the new launches and higher inventory levels with distributors. These factors are leading to continued and heightened price erosion, delays in launching niche products, and compliance issues related to USFDA, it said.

Several companies have reduced their incremental dollar investments in R&D due to diminishing returns on their investments, potentially reducing competition in the next two to three years.

Silver lining

However, Antique is optimistic about the upcoming ‘Patent Cliff’ in US generics from CY24 onwards. It believes this is a positive development that will provide much-needed growth in the US generics market and may continue beyond CY27.

According to Antique, Lupin and Zydus Life have the strongest positions in terms of First-to-File status for large launches.

Over the next two years, the brokerage firm believes that Lupin is likely to experience higher US generics growth in terms of revenue from FY23 to FY25.