Torrent Pharma, Cipla, Sun Pharma Retain 'Buy' From HSBC On U.S. Demand

U.S. sales were the driving force behind pharma companies' earnings in the first quarter of fiscal 2024, according to HSBC Global Research.

Majority of the pharmaceutical companies included in the brokerage's coverage reported operational performance that was either in-line with estimates or better-than expected.

HSBC Global Research expects the robust growth in U.S. sales to persist. The substantial year-to-date price increase of 20.3% for the BSE Healthcare (compared to a +6.1% rise for the Sensex) predominantly reflects the optimism surrounding the favorable trends in the region's sales, it said in an Aug. 28 note.

The brokerage maintained its 'buy' rating on Torrent Pharmaceuticals Ltd, Cipla Ltd., and Sun Pharmaceutical Industries Ltd.

However, it downgraded its rating for Dr. Reddy’s Laboratories to 'hold' from 'buy', on lack of catalysts.

The growth in the U.S segment's sales can be attributed to several factors, including increased demand, (including emerging opportunities given pullback by certain peers), consistent pricing, and a notable increase in sales for key product launches. One such example of a successful key launch is the notable sales growth of gRevlimid.

The majority of pharmaceutical companies indicated that pricing conditions for their portfolios in the U.S. market were favorable during the first quarter. HSBC assumes that these prices will remain stable over the next few quarters.

The first quarter experienced a seasonal low, influenced by factors such as summer vacations. This period also saw hospitals registering lower key performance indicators, including metrics like occupancy rates and patient footfalls.

Despite these challenges, the growth of Average Revenue Per Occupied Bed was maintained. Growth was sustained due to better mix and tariff hikes. "Barring short-term variations, we think the outlook remains steady for the core hospitals business, as structural growth drivers remain intact (e.g. rising insurance coverage)," HSBC said.

Dr. Reddy's Laboratories

• HSBC Global Research downgraded the rating to 'hold' from 'buy' with an unchanged target price at Rs 6,250.

• Dr Reddy’s earnings will largely hinge around contribution from gRevlimid sales in the U.S. until FY26e.

• HSBC noted the major earnings delta for Dr Reddy’s would next be driven by a step-up in the India formulations segment.

• The company is focusing on differentiated offerings — OTC, nutraceuticals, digital therapeutics, and specialty products — to grow better than market in India.

• It has comfortable cash levels to acquire strategic mergers and acquisitions assets, though its execution of acquired assets has been mixed so far.

Torrent Pharmaceuticals

• Brokerage maintained a 'buy' rating on the stock, with an unchanged target price of Rs 2,270.

• Torrent Pharmaceuticals' structurally strong business profile stands out compared to most of its peers, with more than 70% of its revenue coming from branded generics (BGx) markets.

• The company can sustain above-market sales growth in the branded generics markets – mainly in India and Brazil – led by new launches, improved market share, and price hikes, according to the brokerage.

Cipla

• Brokerage maintained a 'buy' rating on the stock and upgraded the target price to Rs 1,350 from Rs 1,270.

• The research firm expects near-term demand outlook to remain strong in the U.S., as channels focus on supply consistency, amid changes in supply dynamics.

• Healthy demand outlook, continued traction in key launches (gRevlimid, lanreotide 505b2) and a pick-up in leuprolide 505b2 should ease concern on potential decline in sales from albuterol inhaler in near term.

Sun Pharmaceutical Industries

• HSBC Global Research has maintained 'buy' rating on the stock with an unchanged target price of Rs 1,275. "We retain our 'buy' rating on the back of the steady outlook for its specialty portfolio sales," the note said.

• The research firm expects pick-up in supplies from Mohali (another key plant for the U.S. market), healthy demand outlook and contribution from gRevlimid to support U.S. generic sales in near to medium term.

• HSBC assumes a recovery in its India formulations growth, driven by improved sales team productivity and doctor coverage.

• "We expect healthy sales for the specialty segment to help it to partly offset the impact of costs build up for R&D and marketing," the note said.