Steady growth despite US sales pressure, GST rate cuts

Brokerages BNP Paribas, Kotak Securities, and HDFC Securities estimate the sector’s second-quarter revenue to grow 9-11% from a year earlier, and ebitda to grow 8-12%. Ebitda, or earnings before interest, tax, depreciation, and amortisation, is a key measure of operational efficiency.

“For 2QFY26, we expect most of the US-focused companies to witness a margin profile reset to lower levels on exhausting most of their FY26 gRevlimid production quota,” BNP Paribas research analyst Tausif Shaikh said in a note dated 10 October.

The brokerage expects a 70 basis points year-on-year decline in aggregate ebitda margins for Indian pharmaceutical companies.

Several Indian pharma companies, including Dr Reddy’s Laboratories Ltd, Zydus Lifesciences Ltd, Sun Pharmaceutical Industries Ltd, and Aurobindo Pharma Ltd, will see sales of blood cancer drug Revlimid decline quarter-on-quarter, as the companies near the loss of exclusivity rights for the drug.

These companies are expected to report their second-quarter earnings in early November.

Since 2022, Indian companies had reached settlements with the innovator of Revlimid, Celgene (which was acquired by Bristol Myers Squibb in 2019), to sell the drug in restricted quantities until its patent expires in January 2026, and have cashed in on the blockbuster drug.

However, lower Revlimid sales and pricing pressure in the US is expected to be offset by steady traction in key products and new launches.

“Ebitda margins for the pharma segment are expected to remain flat (+14bps YoY), as price erosion in the US and expected increase in R&D,” HDFC Securities said in a research note on 8 October.

The NIFTY Pharma index has declined 5.14% year-to-date, underperforming the benchmark Nifty 50, which has gained 8.28%.

Continuous news flows related to US tariffs have kept the stocks of Indian pharma companies volatile, said BNP Paribas.

While US President Donald Trump’s recent announcement of 100% tariffs on pharma imports skipped generic drugs, uncertainty over the decision’s overarching impact continues to be a drag.

Domestic pharma sales: GST effect

In the first quarter of 2025-26 (April-June), strong domestic sales buoyed overall pharma industry earnings as pricing pressure in the US market continued.

However, for the second quarter (July-September), pharma sales in the domestic market are expected to be impacted by GST rate cuts, as distributors focused on de-stocking inventories with old prices while holding back on new orders.

“Apart from a short-term disruption in domestic primary sales, we expect receivable days for pharma companies to increase over the near term, as they support distributors to offset the impact of the higher recovery period for input credit of GST (on existing inventory, which remained in their stock, before the lower GST becomes applicable),” Kotak Securities analysts said in a note dated 6 October.

The analysts expect domestic pharma sales to grow in the range of 7–14% year-on-year, with growth impacted by 50-200 basis points due to lower sales on account of the GST rate cuts.

Key launches in focus

New drug launches such as that of the generic version of Entresto (Novartis’s heart medicine that lost its patent in India in September)—by Alkem Laboratories Ltd, Torrent Pharmaceuticals Ltd, Zydus, and Dr Reddy’s—and that of blood thinning medicine Xarelto—by Aurobindo Pharma and Lupin Ltd—as expected to offset pricing pressure in the US.

For Lupin, the launch of a generic version of Tolvaptan (to slow kidney function decline) is expected to boost quarterly earnings. The company launched Tolvaptan in the US in May and has 180-day exclusivity for the drug.

Cipla saw strong market share gain for asthma inhaler Albuterol (over 20%) and its market share for key drug Lanreotide remained steady at 20%, said BNP Paribas.

Sun Pharma’s growth will continue to be driven by key products in its innovative medicines portfolio, according to the brokerage. Sun Pharma’s US business is expected to grow 4% quarter-on-quarter, led by the launch of alopecia medicine Leqselvi.

“We expect some pressure on EBITDA margin (150bp decline y-y) due to investments into the launch of the two new specialty products,” said BNP Paribas.