Pharmaceutical firms are expected to post robust top-line growth and improve profitability in the second quarter of this fiscal, driven by steady growth in the country, a brokerage firm has said.

For the July-September period, we expect a robust growth of 18 per cent in revenues, EBITDA 22 per cent and earnings 18 per cent for our coverage universe, driven by ramp-up in the U.S. and steady growth in India due to price hikes for certain products,” Edelweiss Securities said in its report here.

Russia/CIS and Japan growth is likely to be muted given the rouble/yen depreciation versus the Indian rupee, it said.

Earnings momentum of pharma companies is to continue on robust top-line growth and improving profitability. Gross margin has been rising since the past few quarters as the U.S. is gaining scale with more productive launches and the India business is bouncing back and favourable currency, it said.

This has enabled higher investments in R&D and also led to structural improvement in EBITDA margin, which the borkerage firm believes is sustainable. Steady margins will lend credence to the thesis that Indian pharma has moved up the value chain in the U.S., the report said.

The report said that the Sun Pharma, Ranbaxy and Torrent are expected to report strong earnings as Sun Pharma subsidiary Taro hiked prices of clobetasol, clotrimazole, warfarin and carbamazepine in June 2014, which should drive the second quarter earnings. Ranbaxy will also benefit from the Diovan FTF launch in July 2014.

Torrent’s earnings will drag with the Cymbalta exclusivity ending.

Consolidation of Elder’s acquired business would cushion its profitability.

Cipla witnessed better-than-expected margin improvement in the first quarter which is expected to continue. It should also gain from its partnership with Teva for Baraclude, it said.

The business model of Indian generic players is evolving seamlessly towards higher value realisation.

“We expect U.S. growth to remain robust on market share gains and multiple niche launches going forward. We believe the India market is well set to grow, particularly with the pricing policy uncertainty done with and first round of price hikes for NLEM (National List of Essential Medicines) products undertaken....” the report said.

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