Sun Pharma Q2 Preview: Higher costs, price erosion to mar profitability

Strong growth in sales in the US is likely to help report a double-digit growth in revenue for the quarter ended September, but the operational performance will be marred by higher costs and inflationary trend of input prices, analysts said.

The drugmaker will report numbers on Tuesday.

Consolidated net revenue is seen rising over 14% on year to Rs 10,994 crore, according to the average of estimates by nine brokerages.

Analysts expect an 18-21% growth in US sales, led by the speciality segment. This segment includes the psoriasis treatment drug Ilumya and immunosuppressant Cequa.

Brokerage Kotak Institutional Equities expects single-digit growth in revenue for India and the rest of the world markets, owing to marginal contribution from Covid-related drugs in the same quarter last year.

The operational performance, however, will be hit by higher research and development costs, input prices, and continued erosion in prices in the US generics market. Sun Pharma’s US-based subsidiary Taro Pharmaceutical Industries, which released Q2 earnings last week, reported an operating loss of $6.8 million against a profit of $24.4 million a year ago, primarily due to pricing pressure in the generics drug market.

Analysts expect Sun Pharma’s consolidated operating margin to drop by 300-330 basis points from the year-ago period.

“Margins (likely) to contract by 310 bps due to high base (of Covid as well as licensing income of $10 million) and higher sales-force cost and inflationary trends, resulting in flat EBITDA,” brokerage PhillipCapital said in its report.

Weighed down by the weak operational performance and a loss at Taro, the consolidated net profit is seen falling by nearly 5% to Rs 1,985 crore, the estimates showed. Taro posted a net loss of $2.8 million against a net profit of $23.3 million in the year-ago period.

Given the continued pricing pressure in the US market, the overall outlook for the generics portfolio, and view for the India business, besides margin trajectory for the rest of the financial year, will be eyed by investors.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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