NIFTY PHARMA AT NEW HIGH ON ELI LILLY DEALS

Since April, the index has surged 15% against 1.7% gain in Nifty50

The Nifty Pharma index hit an all-time high of 14,228, after rising 3.5 per cent intraday on the National Stock Exchange (NSE) on Monday, led by a strong rally in stocks like Torrent Pharma, Alkem Laboratories, Cadila Healthcare, Aurobindo Pharma, Dr Reddy’s Laboratories, Sun Pharmaceutical Industries, and Divi’s Labs. The pharma index surpassed its previous high of 14,020.70, touched in intraday trade on April 7, 2015.

Since April this year, the Nifty Pharma index has outperformed the market, surging 15 per cent against a 1.7 per cent gain in the Nifty50. In the past month, the market valuations of Cadila Healthcare, Lupin, Dr Reddy’s Laboratories, Divi’s Laboratories, Aurobindo Pharma, and Sun Pharma have appreciated between 10 per cent and 21 per cent. In comparison, the benchmark index is up less than 1 per cent.

The gains are led by a strong performance by pharmaceutical companies in the domestic market in April, tie-ups by Indian generic players to market Covid-related drugs, and expectations of double-digit growth in the March quarter.

Indian Pharma Market (IPM) sales for April 2021 showed 51.5 per cent growth YOY. Adjusting for the low base effect and excess Covid sales, April YOY growth is at 17.7 per cent, still strong, analysts at Jefferies said in the pharma sector report.

There is likely a component of stocking up as many states entered lockdowns during April. May is expected to show similar trends. “However, we remain concerned about FY22 growth as Covid delays normalisation,” the brokerage firm said, adding, since May also has a low-base effect and Covid-related sales continue to be strong, the month is likely to show strong growth.

The analysts expect growth to normalise thereafter. “We are also concerned that a surging Covid will discourage patients from delaying doctor visits which may impact overall FY22 growth,” the report said.

In April 2021, Glenmark Pharmaceuticals (181 per cent YOY), Cipla (73.5 per cent), and Alkem Laboratories (63.7 per cent) delivered robust growth. Torrent Pharma, Sun Pharma, Lupin, and Alembic Pharmaceuticals also showed better traction, albeit slower than the industry in April 2021, Motial Oswal Securities said in its health care sector update.

Among individual stocks, Sun Pharma hit a four-year high of ~702.50, up 3.3 per cent on the NSE in intraday trade on Monday. The stock was trading at its highest level since April 2017. Shares of Cadila, Aurobindo, Divi’s, and Lupin also hit their 52-week highs during the day.

The Street reacted positively to the announcements by Cipla, Lupin, and Sun Pharma about their tie-up with US drug major Eli Lilly. The three companies will make and distribute the anti-inflammatory drug Baricitinib, which has been approved for the treatment of Covid.

The Street will keep an eye on the March quarter results; Cipla and Dr Reddy’s are expected to announce their numbers on Friday. Market leader Sun Pharma will announce its numbers later this month.

ICICI Securities expects Sun Pharma’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin to improve 635 basis points (bps) YOY to 23 per cent, mainly due to less marketing and travel expenses, and a better product mix.

Revenue is likely to grow 7 per cent YOY to ~8,760 crore, led by 10 per cent growth in domestic and 12 per cent growth in both Rest of the World (ROW) and emerging markets. In the US, it is expected to grow around 2.2 per cent YOY to ~2,773 crore amid continued traction in the specialty portfolio. Adjusted net profit is expected to grow 120.2 per cent to ~1,455 crore, the brokerage firm said in a results preview.

In the past month, the market valuations of Cadila Healthcare, Lupin, Dr Reddy’s Labs, Divi’s Labs, Aurobindo Pharma, and Sun Pharma have appreciated between 10% and 21%