As earnings season for the fourth quarter of fiscal 2024 continues, analysts at Goldman Sachs (NYSE:) have revised their forecasts for the Indian pharmaceutical sector, taking into account a range of variables, from monthly sales data to currency fluctuations. Notably, the sector continues to trade at prices more than one standard deviation above the five-year average, thanks in large part to the resilience of major players such as Sun Pharma (NS:), Chipla (NS:) and Divi’s Laboratories.
In its latest report, Goldman Sachs highlights the importance of management’s commentary on several key factors: domestic market expansion trajectory, U.S. generic drug pricing trends and fiscal 2025 profitability outlook.
Analysts remain bullish on several stocks, including Syngene, Neuland, Torrent Pharma (NS:), Aurobindo, Gland and Biocon (NS:), while expressing reservations regarding Laurus, Cipla and Sun Pharma.
Key Highlights from Q4 FY2024 Results
1. Dynamics of the domestic market: Despite modest underlying volume growth, stable pricing dynamics and recent patent expirations continue to support new product development. Management’s recommendations on the sustainability of volume growth and the impact of price adjustments on the National List of Essential Medicines (NLEM) portfolio remain critical.
2. Prices for generics in the USA: While concerns about underlying business erosion have subsided, Goldman Sachs is highlighting the transitory nature of the current pricing environment. They expect price declines to stabilize in the mid to high single digits, a trend that is likely to benefit companies such as Aurobindo and Gland.
3. Margin forecast: The strong gross margins seen in the last financial year are expected to continue, albeit with potential headwinds from rising input costs. Management’s comments regarding cost trends in a volatile commodity price environment will be closely monitored.
Goldman Sachs revised its earnings estimates to take into account recent market developments and move its estimate base forward. Notable adjustments include revisions to price targets, with favorites being Torrent Pharma due to its structural vulnerabilities, Aurobindo due to its tactical play on generics in the US, and newcomers Syngene and Neuland. Conversely, downward revisions were made for Laurus, Cipla and Sun Pharma, citing specific factors affecting the earnings outlook.
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X (formerly Twitter) – Aayush Khanna