Emkay Your success is our success

Transcription

1 Emkay Your success is our success September 28, 2012 % Sales Impact % Impact GSK Pfizer Ranbaxy -4-6 Cipla -3-5 Cadila -3-7 Glenmark -2-3 Lupin -2-3 Torrent -2-3 Reddy's -3-3 Sun -2-2 IPCA -1-2 Current Current FY14E Reco GSK Reduce Pfizer Hold Ranbaxy Buy Cipla Hold Cadila Buy Glenmark Hold Lupin Buy Torrent Buy Reddy's Hold Sun Buy IPCA Buy Deepak Malik deepak.malik@emkayglobal.com Ashish Thavkar ashish.thavkar@emkayglobal.com Pharma Drug Policy Moderate Impact: Already Priced-In GoM recommended that the retail price of essential 348 drugs will be fixed at weighted average price of brands that have more than 1% market share Proposed policy will cover 30% of the pharmaceutical industry and will bring down the average prices by about 10% It is still not clear that how the companies can take the price increase in the molecules which are under price control. Price increase formula will decide if the impact is one time or permanent in nature Maximum impact will be on MNC Pharma companies like GSK and Pfizer, having impact of 15-20% on FY13 followed by Indian companies, like Cipla, Cadila & Ranbaxy each having 5-7% impact on FY13. Rest of the companies will have 2-3% impact on the Outcome of the EGoM Meeting: Based on Media Reports, the committee has accepted the recommendation of OPPI (Organization of Pharmaceutical Producers of India) which had recommended max price as average price of all brands in a segment, having 1% or more market share. In the earlier meeting, GoM has agreed to limit price control only to the National List of Essential Medicines (NLEM) i.e. 348 drugs and no combinations drugs will be included, which means 30% of the pharma industry will be under price control compared to 18% currently The proposed policy is positive for the industry because the market based price control formula is less severe than cost-plus method Maximum impact on MNC pharma followed by Cipla, Cadila and Ranbaxy As per our calculation, maximum impact will be on MNCs like GSK ( impact 20%) and Pfizer ( impact 10-15%) as 100% of the revenues accrue from the domestic market and most of the products are priced at a premium to local peers For Indian companies, maximum impact will be on Cipla, Cadila & Ranbaxy each having 5-7% impact on FY13 Rest of the companies will have 2-3% impact on the It is still not clear that how the companies can take the price increase in the molecules which are under price control. Price increase formula will decide if the impact is one time or permanent in nature Exhibit 1: Impact of pricing policy on the pharma companies (Rs mn) % India Sales Domestic Sales Impact on domestic Sales % of domestic sales impacted Impacted Current New % Impact GSK ,088-2, Ranbaxy Cipla Cadila Glenmark Lupin Torrent Reddy's Sun IPCA Pharma Drug Policy Emkay Global Financial Services Ltd. 1

2 Company-wise Impact Exhibit 1: GSK Pharma Impact on top brands Amoxycillin + Clavulanic acid % -60% Paracetamol % -10% Ceftazidime % -10% Albendazole % -10% Cetirizine % -5% Allopurinol % -10% Medroxyprogesterone % -13.8% Hepatitis b % -10% Cefixime % -8% Atracurium % -10% Hydrocortisone % -28% Total Sales Impacted 39.4% -8.0% Sales under DPCO Approx. 40% of the sales will come under the proposed policy. Major brands which will be impacted are Augmentin, Calpol & Ceftum. Proposed price control policy will impact 8% of the domestic revenues of GSK will get impacted by 17% for CY13. Revised stands at Rs66.7 vs. earlier estimated of Rs95 for CY13 At CMP, the stock is trading at 25x CY13E revised. Exhibit 2: Ranbaxy Labs Impact on top brands Diclofenac % -10.0% Amoxycillin % -3.4% Atorvastatin % -14.0% Ofloxacin % -44.4% Amoxycillin + Clavulanic acid % -56.9% Clotrimazole % -5.3% Losartan % -15.7% Ampicillin % -20.9% Betamethasone % 0.0% Diazepam % -10.0% Total Sales Impacted 32.7% -4.0% Sales under DPCO Approx. 33% of the sales will come under the proposed policy. Major brands which will be impacted are Mox, Storvas & Moxclav. Proposed price control policy will impact 4% of the domestic revenues of Ranbaxy will get impacted by 7% for FY13. Revised stands at Rs26.2 vs. earlier estimated of Rs28 At CMP, the stock is trading at 20x CY13E revised base Emkay Research September 28,

3 Exhibit 3: Cipla Impact on top brands Amoxycillin % -9.0% Mifepristone % -7.6% Azithromycin % -9.5% Ondansetron % -19.0% Misoprostol % -10.0% Amoxycillin + Clavulanic acid % -3.5% Misoprostol % -10.0% Metoprolol % -27.3% Atorvastatin % -10.4% Ofloxacin % -39.1% Total Sales Impacted 42% -2.7% Sales under DPCO Approx. 42% of the sales will come under the proposed policy. Major brands which will be impacted are Novamox & Azee. Proposed price control policy will impact 3% of the domestic revenues of Cipla will get impacted by 5% for FY13. Revised stands at Rs16.5 vs. earlier estimated of Rs17.4 At CMP, the stock is trading at 23x revised Exhibit 4: Cadila Impact on top brands Atenolol % -10.0% Atorvastatin % -18.8% Pantoprazole % -2.7% Artesunate % -10.0% Omeprazole % -3.5% Norethisterone % -7.8% Bisacodyl % -10.0% Tramadol % -6.2% Total Sales Impacted 44% -2.9% Sales under DPCO Approx. 44% of the sales will come under the proposed policy. Major brands which will be impacted are Aten, Atorva, Falcigo & Ocid Proposed price control policy will impact 3% of the domestic revenues of Cadila will get impacted by 7% for FY13. Revised stands at Rs37.6 vs. earlier estimated of Rs40.4 At CMP, the stock is trading at 23x revised Emkay Research September 28,

4 Exhibit 5: Glenmark Pharma Impact on top brands Clotrimazole % -10.0% Dextromethorphan % -12.1% Metformin % -14.5% Azithromycin % -5.0% Cefixime + Ofloxacin % -5.5% Clotrimazole % -10.0% Clindamycin % -10.0% Total Sales Impacted 20.7% -1.8% Sales under DPCO Approx. 21% of the sales will come under the proposed policy. Major brands which will be impacted are Candid, Alex & Alex +. Proposed price control policy will impact 2% of the domestic revenues of Glenmark will get impacted by 3% for FY13. Revised stands at Rs20.3 vs. earlier estimated of Rs20.9 At CMP, the stock is trading at 21x revised Exhibit 6: Lupin Impact on top brands Atorvastatin % -1.4% Ethambutol % -10.0% Ceftriaxone % -19.1% Metoprolol % -11.8% Metformin % -34.3% Calcium Carbonate + Others % -10.0% Total Sales Impacted 25% -1.7% Sales under DPCO Approx. 25% of the sales will come under the proposed policy. Major brands which will be impacted are Tonact & Gluconorm. Proposed price control policy will impact 2% of the domestic revenues of Lupin will get impacted by 3% for FY13. Revised stands at Rs25.2 vs. earlier estimated of Rs25.8 At CMP, the stock is trading at 24x revised Emkay Research September 28,

5 Exhibit 7: Torrent Pharma Impact on top brands Diltiazem % -10.0% Domperidone % -10.0% Losartan % -8.7% Nifedipine % -4.0% Fluconazole % -21.2% Aciclovir % -31.3% Total Sales Impacted 30% -2.7% Sales under DPCO Approx. 30% of the sales will come under the proposed policy. Major brands which will be impacted are Alprax, Domstal & Topcef. Proposed price control policy will impact 3% of the domestic revenues of Torrent will get impacted by 3% for FY13. Revised stands at Rs43.8 vs. earlier estimated of Rs45.2 At CMP, the stock is trading at 16x revised Exhibit 8: Dr. Reddys Impact on top brands Omeprazole % -10.0% Amlodipine % -5.6% Doxycycline % -10.0% Griseofulvin % -10.0% Diclofenac % -32.5% Clopidogrel % -37.2% Total Sales Impacted 33% -3.1% Sales under DPCO Approx. 33% of the sales will come under the proposed policy. Major brands which will be impacted are Omez, Atocor & Enam. Proposed price control policy will impact 3% of the domestic revenues of Dr. Reddys will get impacted by 2% for FY13. Revised stands at Rs77.1 vs. earlier estimated of Rs79.3 At CMP, the stock is trading at 21x revised Emkay Research September 28,

6 Exhibit 9: Sun Pharma Impact on top brands Atorvastatin % -2.1% Sodium Valproate % -17.7% Clopidogrel % -3.5% Losartan % -5.9% Olanzapine % -6.8% Alprazolam % -1.9% Diltiazem % -10.0% Total Sales Impacted 23.7% -1.95% Sales under DPCO Approx. 24% of the sales will come under the proposed policy. Major brand which will be impacted is Pantocid. Proposed price control policy will impact 2% of the domestic revenues of Sun Pharma will get impacted by 2% for FY13. Revised stands at Rs28.1 vs. earlier estimated of Rs28.6 At CMP, the stock is trading at 24x revised Exhibit 10: Ipca Labs Impact on top brands Hydroxychloroquine % -10.0% Metoclopramide % -10.0% Primaquine % -10.0% Sulfasalazine % -10.0% Amlodipine % -17.4% Sodium Valproate % -10.0% Total Sales Impacted 39% -1.3% Sales under DPCO Approx. 39% of the sales will come under the proposed policy. Major brands which will be impacted are Lariago, HCQS & Perinorm. Proposed price control policy will impact 1% of the domestic revenues of Ipca will get impacted by 2% for FY13. Revised stands at Rs29.9 vs. earlier estimated of Rs30.6 At CMP, the stock is trading at 16x revised Emkay Research September 28,

7 Emkay Global Financial Services Ltd. 7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai India Tel: Fax: Web: DISCLAIMER: Emkay Global Financial Services Limited and its affiliates are a full-service, brokerage, investment banking, investment management, and financing group. We along with our affiliates are participants in virtually all securities trading markets in India. Our research professionals provide important input into our investment banking and other business selection processes. Investors may assume that Emkay Global Financial Services Limited and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Emkay Global Financial Limited or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in Canada or used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Emkay. All trademarks, service marks and logos used in this report are trademarks or registered trademarks of Emkay or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read Risk Disclosure Document for Capital Market and Derivatives Segments as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Emkay Research September 28,