According to Axis Securities, the pharma sector recorded 11% YoY and 4% QoQ revenue growth in Q1FY25, led by the strength of the home market, the introduction of new products, cost optimization, and the expansion of US businesses. The top choices are Lupin, Aurobindo Pharma, and Krishna Institute of Medical Sciences.
According to a recent study on the prospects for the pharmaceutical business following the Q1FY25 results, brokerage house Axis Securities, the Pharma Coverage universe experienced significant revenue growth of 11%/4% YoY/QoQ in Q1FY25.
A robust home market, the introduction of new products (especially Darunavir, DDR D, gMyrbetriq, and gSpiriva), reduced price erosion, higher gross margins from cost optimization, and the diversification of the US base business portfolio were some of the drivers cited for this growth.
Normalising Cost Inflation
EBITDA margin grew by a strong 250bps/120bps YoY/QoQ in combination with pricing stabilization and normalizing cost inflation. According to the brokerage, consolidated occupancies fell by 340bps YoY and 160bps QoQ, finally reaching 49.8% in Q1FY25.
Despite this drop, ARPOB saw a noteworthy increase of 21.3% YoY and 12.2% QoQ to ₹38,458, driven by a shift in the payer mix in favor of cash and insurance and a reduction in Average length of stay (ALOS) to 3.6.
Oncology, orthopedics, and gastric care were the three significant therapeutic areas with YoY revenue increases of 36%, 14%, and 28%, respectively. Improved payer mix and lower ALOS led to an increase in ARPOB for mature assets to ₹61,245 (up 25% YoY) in Telangana and ₹19,774 (up 25.6% YoY) in Andhra Pradesh.
Improve Cash Flow
“The forecast is still favorable, mostly due to rising ARPOB and additional bed availability, which should improve cash flows. Consequently, the business remains a desirable long-term investment prospect,” the brokerage stated. Numerous growth drivers, such as the recent US market introductions of gSpiriva and Darunavir, which have achieved MS of up to 32% and 30%, respectively, reinforce the bullish prediction.
The recent approvals of Tolvaptan (MS $287 Mn) and Xyway (MS $958 Mn with 180 days of exclusivity) could have a significant effect in the second half. Double-digit growth in the India business is expected as the company reaches 1,000 MR. An acceleration of growth is suggested by the recovery of demand in the API industry.
In the next years, the company’s valuation will be greatly influenced by the ROIC from these large capital expenditures. Given these intricate factors, Aurobindo Pharma’s near-term success will hinge on its ability to handle challenges in the injectables industry while maximizing returns from its capital expenditure plans.
