Pharma, healthcare Q3FY23 preview: Cost pressures abating to aid margins

Hospitals are expected to report a soft Q3 result due to a mix of seasonality and easing pent-up demand, however, average revenue per occupied bed is likely to remain steady

Analysts expect pharma and healthcare companies to report a modest growth in Q3FY23, supported by healthy domestic market performance, tapering down of raw material and freight costs, and easing pricing pressures in the US coupled with a strong flu season.

Hospitals are expected to report a soft Q3 result due to a mix of seasonality and easing pent-up demand, however, average revenue per occupied bed (ARPOB) is likely to remain steady. In diagnostics, analysts model in high-single digit year-on-year (YoY) volume growth in core business, but margins are under pressure from competition.

Analysts at Nuvama Research said that they forecast a 10 per cent YoY growth in revenues and 11 per cent YoY growth in Ebitda. On a sequential basis, the revenue growth is estimated to be muted at 4 per cent, while Ebitda growth sequentially will be stronger at 23 per cent.

A strong flu season in the US will help some Indian drug makers like Ajanta Pharma, Zydus Lifesciences, Lupin, Natco Pharma, Alembic Pharma etc. Systematix analysts said that the generic Tamiflu capsule market in the US has expanded by over 200 per cent YoY, and the generic Tamiflu suspension market has grown by over 500 per cent.

While the price erosion in the US has relatively stabilised, no major launches are lined up.

ICICI Securities analysts said that IQVIA data for the October-December 2022-23 quarter shows that the Indian Pharma market (IPM) grew 10 per cent YoY in value terms. Volumes, however, were flat during the third quarter. Among segments, acute therapies did well during the quarter – anti-infectives category grew by 11.3 per cent, respiratory was up 12.8 per cent YoY. This is because of seasonal demand. Chronic therapies too did well – antidiabetic, cardiac therapies have posted strong growths.

India-focused companies like Torrent Pharma are expected to post 15 per cent revenue growth in the domestic market driven by specialty products. JB Pharma’s India business is likely to grow 45 per cent YoY, thanks to incremental revenues from Sanzyme (probiotic, nutraceutical brands) and Azmarda (Novartis’ heart failure drug for which JB slashed prices by half in December).

The country’s largest drug-maker Sun Pharma is likely to benefit from price hikes and field force expansion in India, said Systematix analysts. The company received an import alert at its Halol facility in December 2022. “However, we expect the sales lost in December 2022 will be offset by volume growth in new launches. We also expect the company to report some inventory write off due to the import alert. Sun Pharma’s Taro business was impacted by a one-off in Q2FY23, which should not recur in Q3FY23,” the brokerage added.

As for hospitals, ICICI Direct said that after a strong performance in Q2FY23, they expect the hospitals to witness a sequentially flat quarter. “This would be on account of lower possible elective surgeries as the quarter was festival driven with both Dussehra and Diwali taking place in the same quarter. However, emergency procedures momentum could have maintained the same trajectory as Q2FY23,” ICICI Direct said.

Similarly, the international patient mix is expected to improve sequentially and is expected to touch or surpass pre-Covid levels.

Fortis Healthcare’s Hospital business is expected to grow 17 per cent YoY led by improving case mix and normalisation of international patients, while SRL revenues are likely to decline 5 per cent YoY with decline in Covid-19 revenues and Ebitda margin to remain flat QoQ at 18.7 per cent, noted ICICI Securities.

The brokerage said that Apollo’s hospital business is likely to grow 14.1 per cent led by a better mix, normalisation of medical tourism. “Ebitda margin is expected to decline YoY with higher spend on Apollo 24x7,” it added.

Nuvama Research said that in diagnostics, a strong season has given way to a drop in volumes in October. “With no let-up in competitive intensity, growth is likely to be only volume driven and exert pressure on margins,” it added.

ICICI Securities said Dr Lal Pathlabs' base business is expected to register a 12.6 per cent YoY growth led by higher footfall.