Pharma Q1 Preview: Steady Performance Expected, Margin Likely To Remain Under Pressure
The Indian market generally presents a more positive outlook, say brokerages
Indian pharma companies are expected to report largely steady performance in Q1FY26. While revenue growth is anticipated—driven particularly by a robust domestic market—margins are likely to face pressure due to a combination of factors.
HDFC Securities projects an overall sales growth of 11% year-on-year (YoY) for its coverage universe, with EBITDA growth lagging slightly at 9% YoY. This anticipated moderation in profitability is primarily attributed to a high base in the prior year (specifically due to gRevlimid sales), persistent price erosion in the crucial U.S. generics market, and an expected increase in research and development (R&D) expenses. Specifically, HDFC Securities foresees a 42 basis point (bps) decline in EBITDA margins for the pharma segment YoY.
Echoing this sentiment, Nuvama anticipates revenue, EBITDA, and Profit After Tax (PAT) growth of 9%, 8%, and 6% YoY respectively for their coverage, with a sequential growth of 3%, 4%, and 5% QoQ. They highlight that aggregate margins are likely to be around 26%, marking a 32 bps YoY contraction, predominantly weighed down by gRevlimid price erosion.
Segmental and Company-Specific Expectations:
United States (US) Business:
The US generics market is a key area of concern for Q1 FY26.
HDFC Securities expects only a 2% quarter-on-quarter (QoQ) growth in US sales (+2% YoY), as the performance remains subdued due to price erosion in the base business and a diminishing contribution from gRevlimid. While new launches like gJynarque and steady traction from gSpiriva for Lupin and gMyrbetriq for Lupin and Zydus, and specialty scale-up for Sun Pharma will provide some offset, the overall market remains challenging.
Nuvama forecasts a modest ~1% YoY growth in US sales for its coverage universe, directly impacted by gRevlimid price erosion.
Centrum Broking is more bearish, predicting a 6% YoY decline in US sales for companies covered by them, citing significant pricing pressure, especially from gRevlimid.
Key Players in the US Market:
Aurobindo Pharma: Anticipated 7% QoQ decline in US business due to moderation in injectables and negligible gRevlimid sales, despite steady OSD growth. Gross margin is expected to decline on US pricing pressure and operational expenses from recently commissioned plants.
Dr. Reddy's Lab: Expected 8% QoQ growth in US business, primarily driven by gRevlimid sales, which will partially offset price and market share erosion in the base business. US sales to decline 11% YoY (CC) to USD413m However, gross margin is expected to decline due to price erosion in key products, leading to lower EBITDA margin. Centrum expects an 11% YoY decline in US sales for Dr. Reddy's.
Lupin: Strong 10% QoQ growth in US business is predicted, fuelled by incremental sales from Tolvaptan, continued traction from gSpiriva and gMyrbetriq, and new launches. This will partly offset competition in Albuterol and gSuprep, contributing to gross margin strength and EBITDA margin expansion. Nuvama highlights Lupin's US growth driven by Tolvaptan and sustained gSpiriva share.
Sun Pharma: US generic business is expected to remain flat QoQ. According to Centrum, US sales are likely to grow 1% YoY (CC) to USD471m led by traction in specialty portfolio, offset by continued price erosion. However, specialty sales are forecast to see strong growth of ~13% YoY. Higher costs, particularly in R&D, are likely to offset steady gross margins, leading to an EBITDA margin correction.
Zydus Life: Expected 1% QoQ growth in the US, buoyed by continued traction from gMyrbetriq and gRevlimid, alongside new launches, partially offset by generic competition in gAsacol HD. Price erosion in the US will contribute to a lower gross margin and EBITDA margin. Centrum expects Zydus to post ~4% YoY growth in US due to gMyrbetriq.
Cipla: Centrum expects Cipla's US sales to decline 12% YoY due to gRevlimid compression. Nuvama expects Cipla's US revenue to stay flat QoQ, impacted by gRevlimid and lower market share in Lanreotide.
Torrent Pharma: Centrum expects US sales growth of 7% YoY due to increased traction and new launches.
India Business (Domestic Formulations - DF):
The Indian market generally presents a more positive outlook.
HDFC Securities forecasts an 11% YoY growth in their coverage universe's India business, outperforming the Indian Pharmaceutical Market (IPM) growth of ~7.2% (as per IQVIA for Apr/May 2025). This growth is driven by M&A activities (Eris, Mankind, Dr. Reddy’s) and traction in specialty (Sun Pharma, Zydus), chronic (Sun, Torrent, Lupin), and CNS segments (Sun, Torrent). Muted growth in anti-infectives (Alkem, Mankind) could temper overall momentum.
Nuvama projects 10% YoY growth for their coverage's domestic business, with Torrent Pharma, Sun Pharma, and Dr. Reddy's likely to outperform. They note IPM growth of 7% YoY in 2M Q1 FY26, led by cardiac, respiratory, and CNS therapies.
Centrum Broking expects the DF segment to grow 9% YoY, driven by new launches and improved medical representative (MR) productivity. Chronic therapies continue to outperform.
Notable Indian Players in Domestic Market:
Sun Pharma: Expected 11% YoY growth.
Dr. Reddy's Lab: Expected 11% YoY growth on steady performance in key therapies. NRT business contribution factored at INR 6.5 billion. Centrum expects 9% YoY growth for Dr. Reddy's DF.
Lupin: Expected 9% YoY growth.
Torrent Pharma: Expected 10% YoY growth due to key therapies and higher MR productivity.
Zydus Life: Expected 10% growth.
Alkem Laboratories: India growth expected to be driven by steady performance across acute and chronic therapies.
Ajanta Pharma: Expected double-digit growth in India business.
IPCA Laboratories: Expected stable domestic business.
Margin Pressure & Key Factors to Watch:
Across the board, the common thread is margin pressure. This is primarily due to:
Price erosion in the US (both base business and gRevlimid).
Expected increase in R&D costs.
Rise in input costs offsetting gross margin expansion from new launches.
Operational expenses related to recently commissioned plants (Aurobindo).
