BSE Healthcare index hits 52-week high, zooms 36% from March low

Dr Reddy's Laboratories, Cipla, and seven other frontline pharma stocks have hit their respective 52-week highs in the past one week

Shares of pharmaceutical companies continued their rally with the S&P BSE Healthcare index hitting fresh 52-week high on the BSE on the back of positive developments in the sector even as most brokerages don't see a meaningful adverse impact of coronavirus (COVID-19) lockdown on the companies' earnings.

The S&P BSE Healthcare index hit 52-week high of 14,854 points on Monday, surging 36 per cent in the last three weeks. In the last 12 trading days, the healthcare index has erased its entire losses of the year 2020. The index hit a 52-week low of 10,948, touched in intra-day trade on March 23.

As many as nine frontline pharma stocks -- Dr Reddy’s Laboratories, Cipla, Divi’s Laboratories, Torrent Pharmaceuticals, Cadila Healthcare (Zydus Cadila), Abbott India, Ajanta Pharma, Alembic Pharma and Alkem Laboratories -- have seen their share prices hit 52-week highs in the past one week.

Sun Pharmaceutical Industries surged 40 per cent during the period, trading close to its 52-week high level of Rs 480, touched on April 10 last year. Cipla, Torrent Pharmaceuticals, Abbott India, Lupin, Aurobindo Pharma, Alembic Pharma and Ajanta Pharma were the other stocks that have outpaced the market by gaining between 34 per cent and 56 per cent during the period.

The pharma space continues its recent dream run and this is probably a beginning of ending the 5-year bear phase, sector analysts said. The BSE Healthcare Index is trading at around 23 times one year forward PE, which is at 10 per cent discount to its five year average. However the relative premium to Nifty has increased sharply to 35 per cent from 15 per cent in the last one year. The premium is now close to its 10-year average of 38 per cent.

“The relative resilience of sector to COVID-19 disruption, stable outlook for India and US business are the key reasons for the increase in the premium. We believe the sector is poised for 15 per cent earnings CAGR over the next two years. In our view the earnings revision cycle is nearing bottom and there is limited scope for valuations to deteriorate,” analysts at HDFC Securities said in pharma sector update.

The brokerage firm prefers stocks with high India exposure as it offers greater earnings visibility, supported by reasonable valuations. The tighter cost control, along with INR depreciation are likely to cushion the margins for the sector in the near to medium term.

Last week, the government lifted the curbs on exports of 13 active pharmaceutical ingredients (APIs) and their formulations. The ban on export of hydroxychloroquine (HCQ) -- claimed to be effective to treat COVID-19 -- was also partially lifted.

Among individual stocks, Cipla has soared 61 per cent in the past 12 trading days. The drug maker said on Thursday that it received the final approval for its asthma medication albuterol (an inhaler) from the USFDA. Following the asthma drug approval and successful completion of g-Advair’s Phase-3 clinical study, brokerage firm Motilal Oswal Securities said that Cipla was well poised to expand its inhaler portfolio in the US market.

Cadila Healthcare announced, on Friday, that it had received tentative approval from the US Food and Drug Administration (USFDA) to market Empagliflozin tablets, in the strengths of 10 mg and 25 mg. The medication is used together with diet and exercise to improve blood sugar control in adults with Type 2 diabetes mellitus. It is also used to reduce the risk of cardiovascular death in adult patients with Type 2 diabetes mellitus and established cardiovascular disease, the company said in press release.

In a separate regulatory filing, the company said that it has initiated an accelerated research programme with multiple teams in India and Europe developing a vaccine for the COVID-19 based on two approaches.