Nifty Pharma index rallies 2% in weak market;Ipca, Dr Reddy's gain up to 6%

Shares of pharmaceuticals companies were in high demand on Thursday, with Nifty Pharma index rallying 2 per cent on the National Stock Exchange (NSE) intra-day in otherwise a weak market. The stocks rallied on a healthy growth outlook and brokerages giving ‘buy’ rating on select stocks.

 

At 02:37 PM; Nifty Pharma, the sole gainer among sectoral indices, was up 1.8 per cent, as compared to 1 per cent decline in the Nifty50 index. Ipca Laboratories, Dr Reddy’s Laboratories, JB Chemicals and Pharmaceuticals, Abbott India, Mankind Pharma, Lupin, Torrent Pharmaceuticals, Cipla and Natco Pharma were up in the range of 2 per cent to 6 per cent.

 

Shares of Dr Reddy’s Laboratories gained 4 per cent to Rs 1,331.35 in intra-day trade after Nomura upgraded the stock to ‘Buy’ from ‘Neutral’. The brokerage firm has set a target price of Rs 1,500 per share. The stock had hit a 52-week high of Rs 1,421.49 on August 21, 2024.

 

Dr Reddy’s stock has underperformed the sector over the past 1-5 years. Over the past one year, the stock has risen 13 per cent vs the Nifty Pharma index up 36 per cent. This is despite strong (22.6 per cent earnings CAGR over FY20-25F) growth and upward revisions (FY25/26 consensus EPS estimates up 10-12 per cent over the past 12 months).

 

In the near term, Nomura said the catalysts are sustaining above-average market growth in India, and low-competition in injectable launches in the US. In the medium term, Dr Reddy’s is likely to benefit from GLP-1 opportunities in emerging markets, including India and Canada. Dr Reddy’s is an integrated player and may record upside from API and formulation sales, the brokerage said.

 

That apart, shares of Ipca Laboratories soared 6 per cent to Rs 1,602.50 on the NSE. Usha Chandurkar, one of the promoters of Ipca Laboratories, sold stocks worth Rs 600 crore, divesting her stake of 1.6 per cent in the company via an open market transaction. The promoter entity holding has reduced from 46.3 per cent to 44.7 per cent. The names of the buyers were not ascertained immediately.

 

Meanwhile, amid tailwind of steady generic pricing, HSBC Global Research believes execution of key launches (e.g. gAbraxane for Cipla) will determine course of the US sales in 2025 for US generic segment. As calendar year 2025 (CY25) will be the peak year of gRevlimid sales, the brokerage firm expect intensifying efforts in complex generics (e.g. inhalers, peptide injectables) which are critical to supporting US growth after the gRevlimid cliff. 

 

In 2025, HSBC Global Research assumes Indian companies will start their journey in GLP-1 drugs with the launch of generic liraglutide (though generics for new-gen GLP-1 drugs are distant in the US). 

 

The brokerage firm assumes the Indian pharma market (IPM) continues to grow by high-single digits, led by price increase and new launches while volume growth remains muted. For contract development and manufacturing organization (CDMO), the improving biotech funding environment and diversification strategy by global innovators (despite uncertainty on the US Biosecure Act) should sustain the pace of request for proposals, client visits, etc., although actual revenues will follow later.

 

The potential industry headwinds are adverse outcome from the Food and Drug Administration’s (FDA's) inspections of manufacturing units and delays in approvals of key products, IP overhang for launch of critical products in the US (e.g. Leqselvi for Sun, aflibercept for Biocon), muted volumes in India and inability to sustain price hike trends of recent years, and rise in raw materials and logistics costs due to adverse geo-political developments, HSBC Global Research said in recent pharma sector report.

 

Last month, InCred Equities upgrade its sector stance to 'Outperform' from 'Neutral', as the recent correction has made several stocks attractive, the brokerage firm said. InCred Equities expects stronger growth in 2HFY25F, supported by branded and trade generics as well as seasonally strong consumer healthcare demand. Near-term earnings momentum in the US appears sustainable, although growth headwinds post-FY26F and potential policy changes could limit any significant upside.

 

While the US pricing dynamics remain stable, medium-term concerns linger over growth beyond Jan 2026F (post gRevlimid settlement expiry) and potential policy shifts under the new US government. However, the brokerage firm sees bright spots in Lupin and Cipla, where it has a relative preference.