 "Pharma companies' premium valuations to sustain")
Pharmaceutical companies, which have outperformed the broader markets in the past month, are expected to continue to sustain this trend. Among the factors analysts say will help them, and consequently, their premium stock valuations, are strong growth in the US and a revival in India business. The growth for these firms continues to be led by gains in the US markets through generic launches and a robust pipeline.
The recent congressional probes on pricing are not being seen as a deterrent to the prospects of Indian companies. What’s more, the growth in the domestic market has picked up and impact of NLEM (National List of Essential Medicines of India) seems a thing of the past. Also, these companies continue to do well in emerging markets, as well as other geographies.
Analysts at Barclays say pharmaceutical companies will continue to sustain a 50 per cent premium against the broader market, as their results for the September quarter will be strong enough. Analysts at Citi, too, say they are positive on the Indian pharmaceutical sector, despite the recent outperformance (more than 18 per cent compared to the market in five months, after the general elections). They expect earning upgrades to continue; they believe relative valuations are below the long-term mean and will rise.
Key product launches in the US, as well as the growing market shares of existing products, during the quarter ended September, is likely to keep the growth momentum strong, despite limited exclusivity or currency benefits (rupee-dollar rate remaining flat). In the absence of one-off benefits, the margins could, however, remain flat. The June quarter had seen more products on exclusivity being marketed by Lupin, Aurobindo, Torrent Pharma, etc. However, following the expiry of exclusivity and due to increased competition, the company didn’t see such a boost in the September quarter, though growth is likely to remain healthy.
Domestic growth, which languished in single digits for the past four quarters, is also picking up, with the Indian pharmaceutical segment posting growth of 11.8 per cent for the September quarter. After seeing price control through the past year (negative to low single-digit growth), the anti-infective segment has rebounded well in the September quarter to about 10 per cent, as anti-diabetic, respiratory and other segments continue to fare well. Among the large-caps, Cipla, Biocon, and Ipca grew about 20 per cent, while growth for Sun Pharma, Lupin Glenmark and Dr Reddy’s has beaten growth in the Indian pharmaceuticals market, according to All Indian Origin Chemists & Distributors-Motilal Oswal data.
Prasad expects Indian pharmaceutical companies to deliver healthy 17 per cent growth in revenue, earnings before interest and profit and net profit for the September quarter. However, there might be a few exceptions: Some analysts feel Dr Reddy’s net profit could be affected due to the 12 per cent depreciation in the rouble against the rupee, as Russia contributes about 20 per cent to its revenues, as well as a higher estimate of research & development (R&D) costs.
Cipla’s profitability remains to be seen, especially in the light of increased employee and R&D costs due to its front-end operations in various markets.
The recent congressional probes on pricing are not being seen as a deterrent to the prospects of Indian companies. What’s more, the growth in the domestic market has picked up and impact of NLEM (National List of Essential Medicines of India) seems a thing of the past. Also, these companies continue to do well in emerging markets, as well as other geographies.
Analysts at Barclays say pharmaceutical companies will continue to sustain a 50 per cent premium against the broader market, as their results for the September quarter will be strong enough. Analysts at Citi, too, say they are positive on the Indian pharmaceutical sector, despite the recent outperformance (more than 18 per cent compared to the market in five months, after the general elections). They expect earning upgrades to continue; they believe relative valuations are below the long-term mean and will rise.
Key product launches in the US, as well as the growing market shares of existing products, during the quarter ended September, is likely to keep the growth momentum strong, despite limited exclusivity or currency benefits (rupee-dollar rate remaining flat). In the absence of one-off benefits, the margins could, however, remain flat. The June quarter had seen more products on exclusivity being marketed by Lupin, Aurobindo, Torrent Pharma, etc. However, following the expiry of exclusivity and due to increased competition, the company didn’t see such a boost in the September quarter, though growth is likely to remain healthy.
Domestic growth, which languished in single digits for the past four quarters, is also picking up, with the Indian pharmaceutical segment posting growth of 11.8 per cent for the September quarter. After seeing price control through the past year (negative to low single-digit growth), the anti-infective segment has rebounded well in the September quarter to about 10 per cent, as anti-diabetic, respiratory and other segments continue to fare well. Among the large-caps, Cipla, Biocon, and Ipca grew about 20 per cent, while growth for Sun Pharma, Lupin Glenmark and Dr Reddy’s has beaten growth in the Indian pharmaceuticals market, according to All Indian Origin Chemists & Distributors-Motilal Oswal data.
Prasad expects Indian pharmaceutical companies to deliver healthy 17 per cent growth in revenue, earnings before interest and profit and net profit for the September quarter. However, there might be a few exceptions: Some analysts feel Dr Reddy’s net profit could be affected due to the 12 per cent depreciation in the rouble against the rupee, as Russia contributes about 20 per cent to its revenues, as well as a higher estimate of research & development (R&D) costs.
Cipla’s profitability remains to be seen, especially in the light of increased employee and R&D costs due to its front-end operations in various markets.