Pharma Sector Check - Strong Uptick In Gross Margin: Prabhudas Lilladher

Prabhudas Lilladher Report

Our pharma coverage universe reported another strong quarter with Ebitda growth of 25% YoY (flat QoQ) mainly aided by new launches (gRevlimid, gSpiriva, etc) in the U.S. market, along with stable generic pricing in the base business.

Further, lower raw material prices and softening of freight costs aided margins on YoY basis. Ebitda margin expanded by 203 bps on YoY basis. Domestic segment was a mixed bag with muted growth from acute and trade generic segment due to a weak season. Cash flow generation was strong for FY24 with a stable working capital cycle.

Healthcare Index has outperformed Sensex by 9% for CY24 year-to-date. Our sectoral outlook remains positive led by tailwinds in U.S. generics, healthy domestic formulations segment, and normalisation in input cost. Henceforth, we expect profitability to continue to improve with-

1. a steady domestic business,

2. niche launches in the U.S. market and

3. continued cost optimisation.

We prefer companies with steady domestic franchises and strong U.S. visibility. Our top picks remain Sun Pharma, Eris Lifesciences, JB Chemicals and Torrent Pharma.

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