PHARMA STOCKS SEE TURN IN FOR­TUNE

Af­ter un­der­per­form­ing for three years, health­care scrips have got the bounce back on mul­ti­ple tail­winds

Financial Chronicle - - FRONT PAGE - FC BUREAU

Bro­ker­ages are get­ting bullish on phar­ma­ceu­ti­cal stocks af­ter the re­cent rally and have raised price tar­gets of bluechip pharma stocks. They ex­pect pharma earn­ings to grow 22 per cent year-on-year in the cur­rent fi­nan­cial year, thanks to eas­ing US FDA re­stric­tions, mod­er­a­tion in price fall and prod­uct launches lined up for the up­com­ing quar­ters.

Bro­ker­ages are get­ting bullish on phar­ma­ceu­ti­cal stocks af­ter the re­cent rally and have raised price tar­gets of bluechip pharma stocks. They ex­pect pharma earn­ings to grow 22 per cent year-on-year in the cur­rent fi­nan­cial year, thanks to eas­ing US FDA re­stric­tions, mod­er­a­tion in price fall and prod­uct launches lined up for the up­com­ing quar­ters.

In an up­date on the sec­tor, HDFC Se­cu­ri­ties said, "We be­lieve FY19 may see a grad­ual come­back for large-cap pharma com­pa­nies, driven by ac­tual and likely reg­u­la­tory res­o­lu­tions, mod­er­at­ing price ero­sion and sev­eral prod­uct launches across generic and spe­cialty cat­e­gories in the sec­ond half of FY19.”

Due to the neg­a­tive im­pacts of reg­u­la­tory clam­p­downs, chan­nel con­sol­i­da­tion in the US and in­creased com­pe­ti­tion, earn­ings of US-fo­cused In­dian pharma com­pa­nies dropped 30 per cent dur­ing FY18. De­spite the all­too-vis­i­ble busi­ness chal­lenges, they per­sisted with higher R&D ac­tiv­ity (re­lated to com­plex gener­ics and spe­cialty busi­ness), which ag­gra­vated the pain. As a re­sult, the Nifty Pharma In­dex has cor­rected about 30 per cent over three years lead­ing to FY18 af­ter clock­ing 30 per cent com­pound an­nual growth rate (CAGR) of dur­ing FY11-15.

It seems the stocks have bot­tomed out and they cur­rently en­joy a favourable base.

The NSE Pharma In­dex was up 0.88 per cent on Wed­nes­day.

VK Sharma, head-pri­vate client group & cap­i­tal mar­ket strat­egy, HDFC Se­cu­ri­ties, said, “The Pharma In­dex had risen 10 per cent in the past four ses­sions, giv­ing the mar­ket and the Nifty a help­ing hand. On Wed­nes­day among the Nifty con­stituents, Dr Reddy was the big­gest gainer, ris­ing 2.9 per cent, fol­lowed by Ci­pla that rose 2.6 per cent and Lupin gained 1.79 per cent.”

Eas­ing of pres­sure from the US drug reg­u­la­tor, as the warn­ings and re­stric­tions ear­lier im­posed are be­ing taken off, is cheer­ing the mar­ket sen­ti­ments on the pharma stocks, he said.

A few days back Sun Pharma got a big re­lief from the US FDA, which will en­able faster ap­provals for its prod­ucts. In al­most 15 days, due to pos­i­tive de­vel­op­ments such as reg­u­la­tory hur­dles get­ting cleared, the stock has ap­pre­ci­ated by 18 per cent, says Sharekhan.

Purvi Shah, pharma an­a­lyst, Sharekhan, com­ment­ing on Sun Pharma,

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