Health care companies' scrips canter along

Weaker rupee, US launch approvals, patent expiry all a boost; further rises expected, say analysts

Stocks of Indian pharmaceutical companies seem to be in the pink of health, as investor interest in these has been rising on the back of a weakening currency, the expiry of generic-drug patents later this year and a host of US drug regulatory approvals. So far this year, the defensive sector stocks have risen by about 38 per cent. Aurobindo Pharma, Ranbaxy Labs, Cipla and Lupin are among the top performers, where prices have risen over 50 per cent since the beginning of this financial year.

According to sector analysts, the turnaround in the US economy has also boded well for the sector, which sees about 70 per cent of its business concentrated there. Further, the US Food and Drug Administration (FDA), after having pulled up several Indian companies in the past for lapses in following their norms, has been granting approvals for drug launches. Wockhardt, Zydus Cadila and Aurobindo Pharma are among those which got FDA approval this year for launches.

On Monday, the BSE healthcare index was one of the two segment gainers, on a day that saw the benchmarks, BSE Sensex and NSE Nifty, close down one per cent. The BSE healthcare index was up about half a per cent as optimism about growth in the sector pushed investor buying.

On the BSE, Wockhardt, Cipla and Sun Pharma were among stocks which saw high trading turnover. On Monday, the rupee touched a one-month low and closed at 61.13 to the dollar, after hitting a day’s low of 61.18. The rupee, while having appreciated about 10 per cent in the past year, has been losing ground in recent weeks.

With the dollar index showing signs of strength, analysts are concerned that the rupee could weaken further. The year-end target for the rupee, according to analysts, is 60-62, with short-term spikes on the upside. Further, volume growth in the sector, along with a rise in prices, is expected to keep growth robust. “We believe the benefit from price increase, improvement in the monsoon trend over the past few weeks and the low base should help improve industry growth in September and also the second half of FY15. We expect domestic growth to recover to eight to 10 per cent in FY15 (versus 6.3 per cent last year), aided by volume increase, low single-digit price increase and resolution of one-off issues seen in FY14,” said a report on the sector, authored by Neha Manpuria of JPMorgan.

The Indian pharma industry grew about eight per cent in August over a year, over a moving annual total growth of 7.1 per cent last year. Analysts said 35 per cent of the growth came on the back of an increase in prices of drugs. The National Pharmaceutical Pricing Authority (NPPA) had fixed new prices for essential national drugs in August 2013. “If you look at the growth potential in the industry, then the valuations are reasonable. The expiry of patents later this year is expected to have a huge impact on the sector,” said Rikesh Parikh, head of equities at Motilal Oswal Securities.

According to analysts, these stocks are expected to see a further rise of 20 per cent.