While most sectoral indices rose with healthy gains, the Nifty Pharma index fell almost by a per cent in the early trade on Monday (May 29), dragged by losses in shares of select heavyweights, including Aurobindo Pharma, Sun Pharma and Divi’s Laboratories.
While most sectoral indices rose with healthy gains, the Nifty Pharma index fell almost by a per cent in the early trade on Monday (May 29), dragged by losses in shares of select heavyweights, including Aurobindo Pharma, Sun Pharma and Divi’s Laboratories.
The pharma sector appears to have lost its mojo after a dream run during the Covid-19 pandemic due to elevated raw material prices, regulatory concerns and price erosion in the generics business in key US markets. The Nifty Pharma index is flat this year so far against a two per cent gain in the benchmark index Nifty50.
The pharma sector appears to have lost its mojo after a dream run during the Covid-19 pandemic due to elevated raw material prices, regulatory concerns and price erosion in the generics business in key US markets. The Nifty Pharma index is flat this year so far against a two per cent gain in the benchmark index Nifty50.
Subscribe to Continue Reading
However, many analysts now believe that one should look at pharma stocks for the medium to long term as the growth prospects of Indian pharma companies have improved while the valuations of their shares have come down due to the correction.
“One should look at pharma stocks with a medium-long term horizon as valuations are attractive, earnings are expected to improve and multiples may expand gradually,” said Cyndrella Carvalho, a pharma research analyst at JM Financial Institutional Securities.
“The medium-term outlook for the pharma sector is positive. We expect a gradual US recovery as the pace of ANDA approvals accelerates and price erosion stabilises. US business growth will primarily come from complex generics and innovation; we believe those companies with strong R&D capabilities and low compliance risk can participate in this growth,” said the analyst.
Carvalho expects the Indian Pharmaceutical Market (IPM) to grow in double digits led by 6-7 per cent price growth, 2-3 per cent new launches and 2-4 per cent volume growth in FY24.
“India markets will see field force expansion, participation in patent expiries and increased mergers and acquisitions. We expect emerging markets and the rest of the world markets to report double-digit growth as supply chain challenges and adverse forex impact eases,” said Carvalho.
Carvalho observed that the March quarter earnings of the pharma sector players have been mixed primarily due to concerns around margins and lacklustre US base business growth.
“US business surprised on the upside primarily due to higher gRevlimid contribution. While other business revenues were broadly in line, EBITDA margins (ex-Revlimid) were weak due to subdued US base business growth and NLEM’s impact on domestic business,” Carvalho pointed out.
“Gross margins improved marginally as high-cost inventory got exhausted and we expect this trend to continue going forward. EM/ ROW markets performed well during the quarter. Notably, most companies under our coverage have strengthened their balance sheet and are scouting for inorganic opportunities,’ Carvalho said.
Girish Sodani, Head of Equity Market at Swastika Investmart underscored that the pharmaceutical market in India had revenues dip for the second consecutive month in March 2022 after expanding for 17 consecutive months up until that point.
“The industry’s revenue decreased by 2 per cent. The net sales and net earnings of the major companies, including Sun Pharma, Cipla, Dr. Reddy’s Lab, and Abott India, decreased. Other publicly traded drug manufacturers also reported a single-digit reduction, demonstrating the extremely slow expansion of…
Read More: Nifty Pharma sees muted performance in 2023; can the stocks change course going