The traditional US generics business is battling price erosion amid competition and new product launches have forged growth. In the domestic market, the non-Covid portfolio has staged a recovery, leading to improved sales. Sales of active ingredients rationalised sequentially.
Sun Pharma reported its highest-ever quarterly sales, and Cipla posted the highest-ever Ebitda margin in the company’s recent history. Lupin’s Ebitda margin improved for the fourth consecutive quarter. Dr Reddys Labs (DRL) reported a contraction in its Ebitda margin even as its net profit took a hit due to an impairment charge of Rs 597 crore.
The industry leader, Sun Pharma, posted improved traction in the specialty business in the US and stellar growth in the chronic portfolio in the domestic market. Better product mix and lower other expenses enabled the company to improve its profitability. The Sun stock is inching toward the half-way mark to its record high level.
One of the early outperformers in the pharma sector, DRL posted a disappointing performance for the quarter to December – with the bottom-line dented by impairments, higher taxation, and increased selling and freight expenses. Its US business was adversely affected by price erosion and increased competition and the volumes from its active ingredients business were also hit. DRL has initiated the phase 3 clinical trials of Sputnik-V vaccine in India, targeting a March roll-out. The DRL stock is now 16% off its record high level.
Cipla posted an improved performance across all its business segments aided by Covid drug sales locally, new launches in the US market and cost optimisation. The company has used the quarter to repay its debt and working capital loans. The stock is 5% below its record high level.
For Lupin, the Q3 performance while better sequentially, was lower than expected. US sales grew only a tad higher than the year-ago level, while the domestic sales grew 5.5% aided by the chronic portfolio. Cost control and rationalisation of the specialty portfolio helped improve margins. The Lupin stock, like Sun’s, is inching half way toward its record high.
Sun Pharma, the underperformer on the Street, appears to be the most promising among its peers. However, high valuations and the pressure to consistently deliver outstanding performances could be potential challenges. For DRL, a vaccine rollout in March could prove to be a growth driver. Cipla’s challenge would be to sustain its outperformance post-Covid. And Lupin needs to recover the ground lost to its peers.