| Summary of Contents
| SHAREKHAN SPECIAL Q4FY2012 Pharma earnings review Key points -
Pharma universe grows at 31% YoY in Q4FY2012: Sharekhan's pharmaceutical (pharma) universe reported a 31.3% year-on-year (Y-o-Y) growth in net sales during Q4FY2012. The growth was mainly driven by the export of formulations which grew by 34.8% year on year (YoY) on a weaker currency, launch of key products in the US and acquisition-led volume growth for a few. Adjusting for marked-to-market (MTM) foreign exchange (forex) losses and extraordinary items, the net profit grew by 52.9% YoY, mainly driven by an improvement in the margins and better operating leverage. While most of the players recorded a better than expected revenue growth, few players like Ipca Laboratories (Ipca Labs; up 11.5%) and Torrent Pharmaceuticals (Torrent Pharma; up 34% YoY) disappointed a bit. The revenues of players like Sun Pharmaceutical Industries (Sun Pharma; up 34% YoY), Divi's Laboratories (Divi's Labs; up 49.7% YoY) Glenmark Pharmaceuticals (Glenmark Pharma; up 34.5% YoY) and Lupin (up 24.6% YoY) were better than our expectations. Piramal Healthcare showed a pick up in its base business and recorded a 16% YoY rise in revenue in Q4FY2012. Cadila Healthcare (Cadila Health; up 15.3%) continued to show weaker revenue from most of the geographies, albeit, that was expected. -
Weaker rupee helps OPM but pinches bottom line: The operating profit margin (OPM) of our pharma universe stood at 24.3% (up 434 basis points YoY) mainly due to favourable currency movement and a better operating performance by players like Sun Pharma (up 1,073 basis points YoY; due to the consolidation of Taro Pharma, launch of key products in US), Glenmark Pharma (up 664 basis points YoY; on lower other expenditure) and Torrent Pharma (up 465 basis points YoY; albeit below expectations) on lower material costs and other expenses. However, players like Piramal Healthcare (OPM down 206 basis points YoY) and Lupin (OPM down 14 basis points YoY) reported weaker margins mainly on a higher raw material costs and higher payments to foreign employees due to the rupee's depreciation. -
Reversal of forex provisions helps profit line: During the quarter, most of the players in our universe have either reversed their marked-to-market provisions for forex losses made in Q3FY2012 to square-off the year-end provisions or reduced their forex losses (non-cash). These provisions collectively resulted in forex gains of Rs86 crore for our universe. Players like Primal Healthcare provided forex gains of Rs72 crore, while Glenmark Pharma provided forex gains of Rs35 crore during the quarter. Lupin and Cadila Healthcare made nominal provisions for forex losses at Rs13 crore and Rs9.5 crore respectively. -
Universe's bottom line grows 30% YoY: Despite an improvement in operating margins, the adjusted net profit (excluding forex and exceptional items) of our pharma universe could see a Y-o-Y growth of 30.5% in Q4FY2012, mainly due to higher tax provisions for few and higher fixed costs for others. The net profit growth would have been at 25% YoY for the universe had we excluded the contribution from Taro (66.3% subsidiary of Sun Pharma). The net profits of the universe were mainly driven by Opto Circuits (up 130% YoY on tax credits of Rs77 crore), Torrent Pharma (up 110% YoY), Sun Pharma (up 85.3% YoY on strong contribution from Taro) and Glenmark Pharma (up 34.6% YoY) mainly due to better margin on key launches in the USA. Valuation
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