INSUBCONTINENT EXCLUSIVE:
NEW DELHI: The pharma sector took a breather in December quarter, after steep downgrades all through the first half of FY19
opportunity for investors at prevailing valuations
The domestic pharma industry can be divided into three categories
cent), Cadila Healthcare (70 per cent), Lupin (70 per cent) and Wockhardt (62-65 per cent).
Players in the second category generate a good
proportion of their revenues from the domestic market
They include companies like Cipla (over 40 per cent of revenue from domestic market), Ajanta Pharma (around 35 per cent) and Alkem Labs
(nearly 70 per cent).
And the third category includes pharma MNCs such as GSK Pharma, Pfizer and AstraZeneca.
Exporters show signs of
revivalHaving been battered on Dalal Street for quite a long time now, this segment is finally showing hope
December earnings marked first quarterly beat on US revenues for domestic drug exporters in nearly three years
Analysts say the sector could stage a recovery from a low base, as product price erosion appears to have bottomed out and US volumes have
started picking up.
All through the depressed phase, several drug makers have sold non-core businesses, rationalised R expenditure D and
changed CXOs to ensure better performance.
Kotak Securities said US generic revenues should recover sharply over FY2020-21 on the back of
new launches, even though there is uncertainty over launch timelines
it said.
Various estimates peg the growth in global pharma spend at 3-6 per cent over 2018-22
The US remains the key market with over 40 per cent of total spending
While $212 billion worth of drugs set to see patent expiry in 2019-2024, major expiries have been pushed beyond 2022, say analysts
Meanwhile, entry of Chinese players has intensified competition.
Yet, analysts say most of these concerns are already in the price at
Pharma, Cadila and Wockhardt, Lupin the worst seems to be over in terms of price performance
Most companies anticipate price erosion to wilt from mid-to-high single digits into the low single digits
still attractive at about Rs 1,800-1,900
Ajanta Pharma has corrected significantly to Rs 1,000 level
Most people missed the trend
But MNC stocks such as AstraZeneca have actually been among the best performers
said.
In December quarter, export-driven names logged higher realisations on rupee depreciation, while MNC players reported better
operating environment and continued volume expansion
Export-focused players will benefit from currency tailwinds in the near term," said Antique Stock Broking.
The brokerage has recommended Dr
Reddy's , Natco Pharma and Cipla, which are domestic-focused stories with expanding US presence.
FY19/20 earnings estimates stabiliseDr
Lupin, Cipla, Cadila and Glenmark Pharma saw a downward revision in earnings estimates for FY19-20.
Overall, the FY19/20 earnings estimate
for the NSE Pharma index remained stable post December quarter earnings, compared with sharp cuts witnessed in H1FY19, CLSA noted in a
report.
Pharma stocks are generally considered defensive bets in times of uncertainty in the domestic economy, as the market is somewhat
immune to weakness in economic fundamentals and most players derive a major chunk of their revenues outside of India
Yet regulatory issues have hurt the sector hard over the past few quarters.
The Nifty Pharma index is down 20 per cent in last two years and
25 per cent in last three years
For the ongoing financial year, it is down 11 per cent against a one per cent rise in Nifty50.
CLSA said it likes Sun Pharma on improving
fundamentals and differentiated product pipeline for the US, and prefers Torrent Pharma for its India positioning.
Elara Capital also likes
Besides, it prefers Aurobindo Pharma due to the turnaround in its EU business and strong fresh cash flow generation over FY18-20, given
limited capex requirements.
IPCA Labs is another stock Elara is bullish on
