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IPM growth slows down to 8.6% in May 2019
* The Indian pharmaceuticals market (IPM) reported a modest value growth of 8.6% in May-19, down from 13.6% in April-19 and 10.7% growth on a MAT basis. Volume growth, which had turned positive in Apr-19 (at 5.1%) after six months of consecutive declines, is down to 1.3% again.
* The month-on-month decline was particularly stark in the segments Anti-infective (from 11.6% to 7.2%) and Cardio (from 14.9% to 9.4%) - which together constitute around 24% of IPM. After consistently underperforming IPM growth for the last 12 months, the Gastrointestinal segment stabilized and reported inline growth.
* With 2.8% growth in May-19, Cadila's momentum has slowed down considerably (MAT growth of 7.4%) in recent times. In Q4FY19 results, management had called out for a weak Q1FY20 due to the ongoing restructuring exercise. Sun Pharma (+6.9%, transitioning to own distribution), Torrent Pharma (+6.5%, weak growth in Unichem brands) and Alembic (+6.3%, channel de-stocking possibly) were some of the other underperformers.
* On the other hand, Cipla (+9.6%, de-stocking in prescription business largely over), Alkem (+17%, possibly benefiting from MR addition in last two years) and Glenmark (+9.9%, strong growth in four of top-five therapies) were the outperformers. DrReddy's and Lupin grew broadly in-line with the market.
* Around 65-70% of Torrent's and Cadila's growth on a MAT basis has come from price hikes, while for DrReddys and Ipca, the contribution of price hikes to overall growth stands at 50-55%. For most other companies, it is between 30% and 40%.
* We remain selective and are bullish on Cipla (US business at an inflection point), Ipca (strong operating leverage) and Divis Labs (structural play, valuations reasonable post the recent correction). We are Overweight on Cipla, Ipca and Divis Labs in our EAP, while being Underweight on DrReddys, Glenmark and Cadila.
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