Adj PAT of healthcare sector likely to grow 11% YoY: MOST

Motilal Oswal has come out with its earnings forecast report on healthcare sector for the quarter ended June 30, 2012 (first quarter of FY13). 

Brokerage firm expects topline growth of 22% YoY for their Healthcare universe (excluding one-offs), with robust EBITDA growth of 35% YoY. Adjusted PAT is likely to grow 11% YoY, says Motilal Oswal.

Excerpts from the report

Topline to grow by 22%, EBITDA by 35% on the back of strong operational performance by Sun Pharma, Dr Reddy's, Ranbaxy, Divi's Labs, Cadila and Ipca Labs.

For 1QFY13, we expect topline growth of 22% YoY for our Healthcare universe (excluding one-offs), with robust EBITDA growth of 35% YoY. Adjusted PAT is likely to grow 11% YoY. The EBITDA growth would be mainly led by strong performance by Sun Pharma on the back of improvement in the profitability of Taro, Dr Reddy's, Ranbaxy, Cadila and Divi's Labs, on low base and favorable currency. Adjusted PAT growth would tapered off, despite strong operational performance due to a variety of reasons like higher tax rate, MTM forex losses on hedges and foreign currency loans, lower other income and higher depreciation on account of acquisitions, and higher interest outgo due to increase in working capital/debt raised for acquisitions.

Key highlights of core 1QFY13 performance

Sun Pharma, Dr Reddy's, Ranbaxy, Divi's Labs, Cadila and Ipca Labs to record strong operational improvement: From our Healthcare universe, we expect Sun Pharma, Dr Reddy's, Ranbaxy, Divi's Labs, Cadila and Ipca Labs to record strong EBITDA growth in 1QFY13. We attribute the following company-specific reasons for this performance:

1. Sun Pharma  - Expect strong operating performance, primarily led by improvement in profitability of Taro and favorable currency 
2. Dr Reddy's - Likely to report strong growth in topline and EBITDA, led by US generic business, PSAI and international branded generic business 3. 
3. Ranbaxy - Likely to report healthy growth in EBITDA, led by healthy growth in topline, favorable currency and low base 
4. Cipla  - Expect healthy growth in EBITDA, despite muted growth in topline, on the back of margin expansion on account of increased capacity utilization at Indore SEZ and depreciation of INR v/s USD 
5. Cadila - Expect strong growth in EBITDA on the back of Biochem acquisition, low base (impacted by inventory destocking) and improved product mix 
6. Lupin - Healthy growth in EBITDA, led by topline growth and lower other expenditure 
7. Glenmark Pharma  - Expect 2% YoY decline in EBITDA on a high base; PAT to decline 58% YoY due to MTM forex losses

CRAMS companies to report strong operational performance: We expect Divi's Labs, Dishman Pharma and Jubilant to report strong operational performance on the back of low base, new order inflows and favorable currency.

Company (June 2012)	Sales	% YoY Chg	Net Profit	% YoY Chg
Biocon	5,493	24.4	827	18
Cadila	14,750	18.4	931	-35
Cipla	17,908	12.5	3,104	22.5
Dishman	3,037	28	143	-5.5
Divis	4,860	35.5	1,330	29.7
Dr	22,533	13.9	2,982	31.8
Glenmark	9,622	10.8	456	-58.3
GSK	6,343	13	1,677	10.6
IPCA	6,406	20.9	469	-23.9
Jubiliant	11,564	22.5	756	-2
Lupin	18,957	22.8	2,105	0.2
Opto	6,202	19.1	1,240	6.5
Ranbaxy	24,270	16	1,352	28.1
Sanofi	3,705	22.3	442	-11.1
Strides	5,696	-2	801	16.2
Sun	21,022	28.5	5,967	19.1
Torrent	7,549	16.6	1,091	22.2