Drug firm shares on a booster dose
Shares of pharmaceutical companies gained ground for a sixth consecutive session on Wednesday, with the Nifty Pharma index moving up by 10 per cent during this period, compared to a 2.5 per cent jump in the Nifty 50 index.
Analysts attribute the runup to positive corporate announcements on the US drug regulatory front.
“Positive news flow at the company/corporate level in terms of regulatory issues being resolved, pick-up in the mid- and small-caps and investors hunting for value buys in the beaten-down stocks have seen the pharma stocks gain over the past few sessions,” explains G Chokkalingam, founder & managing director at Equinomics Research.
While Sun Pharma (up 15 per cent in the past six sessions) announced the resolution of regulatory compliance issues at Halol plant, Aurobindo Pharma gained on the back of US FDA (Food and Drug Administration) approval for Omeprazole (used to treat certain stomach and esophagus problems).
“Halol clearance is a positive development for Sun, as approvals have been delayed for the past three years. The company has 139 pending Abbreviated New Drug Application (ANDA), of which the Halol site is a key contributor in terms of pending ANDA and some might be of limited competition in nature,” said analysts Elara Capital in a note. They believe the stock factors in most positives at the current levels and maintain a ‘reduce’ rating, with a price target of ~482.
Reliance Securities, on the other hand, expects Aurobindo Pharma’s US business to clock 11 per cent compounded annual growth over FY18-20, led by new launches (30-40 in FY19, including few niche products) and a ramp-up in the injectable business. It recommends buying the stock, with a price target of ~712.
Dr Reddy’s, Lupin, Cadila Healthcare, Wockhardt, Aurobindo Pharma, Glaxo Smithkline Consumer Healthcare and Ajanta Pharma have gained 9 to 15 per cent in the past six sessions.
Chokkalingam expects the rally to continue and sees an upside of 10-15 per cent from here but suggests investors remain selective and look at the company’s future growth potential before investing. Of the lot, he likes Lupin at the current levels.
Despite a 10 per cent rally in the past six trading sessions, the Nifty Pharma Index has underperformed the market, by falling seven per cent so far in 2018, compared to three per cent gain in the Nifty 50 index.
Bhavesh Gandhi, an analyst at IIFL, remains cautious on the sector and suggests the rebound in the stocks might not last long. The US market, he believes, still remains pivot for Indian players.
“We remain cognizant of the fall in frontline stocks but the rebound, as and when it happens, would not lift all boats. Retain ‘underweight’ stance, with a liking for select stocks like IPCA Labs and Laurus Labs,” he says.