Mid-cap pharma stocks gain on M&A deals, Budget proposals

The mid-cap pharma and healthcare services sector has seen a healthy run-up recently on the back of a number of M&A deals, both Indian and overseas. Most companies had reported a good quarterly growth as well in the third quarter ended December 2009.
 
The Union Budget's proposal to hike the spending on public healthcare to Rs 22,300 crore, up 14% from last year, as well as reduced import costs of medical equipments also provided the necessary triggers for this sector to outperform the broader indices.
 
However, since Budget the difference in growth in both the indices have been marginal. The Sensex has surged 6.08% since February 26, 2010 while the healthcare index has jumped 5.97%.
 
Strides Acrolab, recently in the news for acquiring stakes in onco JVs with South African drug major Aspen Pharma has surged 46% in the last three months, whereas the Sensex has gained 4.3% in the same time. The company is planning to expand its global business and is eyeing a 100% stake in Australia's Ascent Pharma. The company currently owns 57% of the Australian company.
 
Fortis Healthcare's plans to buy stake in Parkway Hospitals boosted the performance of the stock. The company posted stellar numbers this December quarter with the net profit rising 443.86% y-o-y. The stock has registered a growth of 37.5% in since December 2009.
 
The biggest outperformer in the category has been Apollo Hospitals that has surged 23% in the last three months. The company reported a y-o-y growth of 29% in PAT to Rs 4.39 crore. Recent rumours of the hospital buying stake in Kovai Medicals has, however, been denied by both the companies.
 
Heavyweights lag
 
However, the going has not been good for the frontline players, which have shown little growth in stock prices when compared to the Sensex.
 
Markets ignored the 162% increase in Ranbaxy's December net profit as the company faced more trouble in the US. In this month itself, Ranbaxy failed to get the US Food & Drug Administration (FDA) nod to market the generic version of Japanese drug, Flomax in the US. As many as 30 drugs were banned by the FDA in September 2008.
 
Closer home, it also went to court on a criminal complaint filed by Parth and Pearl. The stock underperformed the Sensex and grew only 12% in the last three months.
 
Dr Reddy's added 6.6% in the last three months in spite of 14.6% drop in net profit in the December quarter.
 
Cipla had its share of good news recently as Piramal Healthcare bought the rights for the company's emergency contraceptive pill, i-pill, for Rs 95 crore.  The stock would replace Sun Pharma in the 30-stock Sensex on May 3, 2010. However, the scrip could not gather enough momentum and has gained only 2.6% since December, as against a 4.3% jump in the Sensex in the same period.
 
Among other counters, Sun Pharma gained 9% in the three months, while Lupin edged up of 12% since December 2009.