Pharma Sector Set for Steady Earnings Growth in Q4
The pharma sector is poised for steady earnings in Q4 FY2025, with analysts expecting modest revenue growth, margin improvement, and strong US generics performance. Brokerages across the industry flag the recovery of US business as the key swing factor, with easing price erosion, new product launches, and favorable currency movements aiding growth.
Despite the looming threat of US pharmaceutical tariffs under the Trump administration, which may impact the sector, most brokerages maintain a steady outlook. Analysts anticipate muted performance for Q4 FY2025, but expect earnings to hold up with revenue growth and margin recovery supported by stable raw material costs and a resilient US generics market.
Highlights:
Key Growth Drivers: US generics, new launches, and favorable currency movements.
Sector Outlook: Easing price erosion and stable raw material costs are expected to support margin recovery.
Tariff Concerns: Analysts remain cautious about the impact of US pharma tariffs, though they are not an immediate concern for Q4.
Top Picks Across Brokerages: Sun Pharma, Lupin, Cipla Shine
Sun Pharmaceuticals
Analyst Recommendations: 34 Buys, 5 Holds, 3 Sells
Q4 Estimated Growth: Revenue +9.4% to 10%, EBITDA +15% to 24.7%, PAT +5% to 8.2%
Sun Pharma is expected to show solid revenue and profit growth, particularly boosted by gRevlimid sales and stable domestic performance. While increased R&D spending and a high base in specialty sales may limit margin expansion, analysts are optimistic about the company’s continued growth.
HSIE highlights the company’s growing specialty segment, while Nomura expects a strong domestic performance. However, the specialty business may experience slower growth due to a high base in the previous quarter.
Lupin
Analyst Recommendations: 22 Buys, 10 Holds, 5 Sells
Q4 Estimated Growth: Revenue +11.6% to 14%, EBITDA +32% to 37.4%, PAT +23% to 33.4%
Lupin is projected to deliver solid revenue growth, supported by key US generics like gSpiriva and gMyrbetriq, along with new launches. Despite potential margin pressure from increased R&D spending, Lupin’s US sales, particularly from products like gXarelto and Tolvaptan, are expected to drive overall growth.
HSIE expects steady traction in Lupin’s chronic segment in India, while Nomura anticipates continued US growth.
Cipla
Analyst Recommendations: 24 Buys, 8 Holds, 5 Sells
Q4 Estimated Growth: Revenue +11% to 18.6%, EBITDA +22% to 55.7%, PAT +12% to 42.6%
Cipla’s growth is expected to be anchored by strong sales in the US and continued momentum in South Africa. Analysts are positive about Cipla’s diversified product mix and strong US performance, despite some concerns about operating leverage not fully translating into margin gains. Key contributors to Cipla’s revenue are expected to be complex generics like Albuterol and gRevlimid.
Other Pharma Players and Outlook
Divi’s Laboratories
Analyst Recommendations: 11 Buys, 6 Holds, 12 Sells
Q4 Estimated Growth: Revenue +12% to 15%, EBITDA +14% to 18%, PAT +18% to 20%
Divi’s Labs remains a favorite for its clean balance sheet and leadership in custom synthesis, but its near-term earnings momentum is underwhelming. Analysts expect steady revenue growth, but the stock’s upside is viewed as already priced in. Competition from Chinese players in the API space and a difficult global procurement environment may pose challenges.
Dr. Reddy’s Laboratories
Analyst Recommendations: 15 Buys, 11 Holds, 14 Sells
Q4 Estimated Growth: Revenue +12.6% to 18.4%, EBITDA +22.5% to 26.2%, PAT +11.6% to 18.3%
Dr. Reddy’s is likely to benefit from the incremental revenue from the Sanofi vaccine acquisition and the integration of the nicotine replacement therapy portfolio in Europe. However, the generics segment faces pressure, particularly with declining gRevlimid sales. Analysts expect steady growth from new launches and an expanding European portfolio.
Aurobindo Pharma
Analyst Recommendations: 22 Buys, 3 Holds, 4 Sells
Q4 Estimated Growth: Revenue +8% to 10%, EBITDA +9% to 12%, PAT +1% to 2.7%
Aurobindo Pharma is expected to post stable performance with revenue growth driven by new launches in the US. The recovery of its injectable business is also anticipated to support growth. Despite no major windfalls in Q4, analysts are optimistic about the company’s long-term recovery, particularly in injectables and US generics.
Margin Recovery and Risks Ahead
Margin Expansion Across the Board
Brokerages are cautiously optimistic about margin expansion across the pharma sector, driven by easing US pricing pressure and stable API costs. Domestic growth may remain muted, especially in chronic therapies. Lupin, Cipla, and Sun Pharma are expected to benefit the most from this trend, with strong US sales driving growth.
Tariff Worries Persist
While the immediate impact of US tariffs on Indian pharma exports has been avoided, analysts remain wary of the potential effects of proposed tariffs, particularly in the 15% to 25% range. Some generic-heavy companies could see a 20% to 30% hit to EBITDA if these tariffs are implemented, impacting the sector’s overall earnings trajectory in the medium term.
