Many of the top pharmaceutical companies are expected to report a healthy 23% increase in revenues for Q2-FY2009. It would mainly be driven by a steady growth in the domestic market, the new product launches in the regulated markets, a strong growth in the contract research and manufacturing services businesses and the consolidation of the acquisitions made in the previous year. With exports accounting for over 50% of the pharmaceutical industry’s revenues, the weaker rupee would also aid the top line growth. However, this would only be partial as most companies have hedged their outstanding receivables at around the Rs 41-42 level. Sun Pharmaceutical Industries would be the biggest beneficiary of the weaker rupee, since it has not hedged aggressively at the higher levels of the rupee, relying more on the natural hedge mechanism.

The operating profit margin of these companies is expected to expand by 170 basis points, largely driven by exclusivity revenues (Sun Pharma). On the other hand, the rising input cost (due to a supply crunch of active pharmaceutical ingredients & intermediates in China) and the higher power and fuel cost to negatively affect the margins of most of these companies. Wockhardt, Cadila Healthcare and Opto Circuits may feel the pressure on their margin on account of the consolidation of the low-margin acquisitions.

Higher interest and depreciation costs (due to acquisitions) would also affect the reported profits in the case of Wockhardt, Cadila and Opto Circuits. On excluding the forex impact, the adjusted net profits of these companies is expected to grow by 37.7% in Q2-FY2009.

Stock Tips: Sun Pharma, Glenmark Pharmaceuticals and Lupin are expected to deliver strong top line and bottom line growth. On the other hand, companies like Ranbaxy, Wockhardt, Ipca and Orchid could surprise negatively due to higher than anticipated forex losses.

Source: Sharekhan report