Pharma - 'Buy' Ipca, 'Add' Lupin, Avoid Dr. Reddy's Among Others Says HDFC Securities Ahead Of Q3 Results

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HDFC Securities Institutional Equities

The India pharma and healthcare sector is expected to see steady growth in Q3 FY25E. We project sales/Ebitda growth of 11%/13% YoY for our coverage universe. Our assumptions are:

1. pharma coverage will see 10% YoY sales growth, driven by a 13% YoY increase in the India business, offset by flattish (QoQ) US sales (+5% YoY). Moderate price erosion and steady traction in key products (gSpiriva, gMyrbetriq) and the specialty scale-up will partly balance the negligible sales from gRevlimid.

2. Ebitda margins for the pharma segment are expected to expand by 50 bps YoY, driven by growth in key markets (India and US) and lower input costs (expanding gross margin by ~167 bps YoY). This will be partly offset by higher costs, including an expected increase in R&D spending and rise in freight costs (+134% YoY and -34% QoQ).

3. The hospital business is projected to grow by 19% YoY, supported by steady occupancy/ average revenue per occupied bed and M&As (Max Healthcare). Ebitda margin expansion is expected for Apollo Hospital due to reduced spending on Apollo 24/7, while Max Healthcare may see a margin decline due to integration impact of acquired hospitals and drag from new hospital (at Dwarka).

4. The diagnostics segment is anticipated to deliver 11% YoY sales growth, driven by patient/test volume increases and steady margins.

5. The retail pharmacy business (Medplus and Apollo Pharmacy) is expected to see steady growth.

Overall, we foresee strong performances from Lupin, Torrent, IPCA and Apollo Hospital, while Aurobindo and Max Healthcare may show more muted results.

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