| Sunny re-rating of pharma companies |
| B G Shirsat & Ashok Divase / Mumbai December 2, 2009, 0:45 IST |
The Bombay Stock Exchange’s Healthcare Index has outperformed its benchmark, the BSE Sensex, surging 33 per cent in six months (Sensex up 17 per cent) and 21 per cent in the past three months (Sensex up 8 per cent), indicating that investors have started re-rating pharmaceutical companies.
The change in outlook saw the BSE Healthcare Index, as well as front-line and mid-cap pharma stocks such as Cipla, Dr Reddy’s Labs, Lupin, Ranbaxy Labs, Piramal Healthcare, IPCA Labs and Cadila Healthcare hitting two-year highs last week.
The performance was led by positive news flow across the sector. The pharma companies suffered a setback in 2008-09, largely due to mark to market (revaluing assets at their current price) losses on derivative products and Foreign Currency Convertible Bonds, due to depreciation of the rupee against the dollar. Now, analysts from Angel Broking, Centrum Broking, Citigroup, CLSA, DSP Merrill Lynch, Edelweiss Research, HDFC Securities, Kotak Securities and Morgan Stanley expect these companies to post robust results for 2009-10. The year’s net sales are expected to grow by over 15 per cent and net profit by over 90 per cent.
The robust growth in sales and profit are expected to come from Aurobindo Pharma, Biocon, Cadila Healthcare, Glenmark Pharma, Lupin, Orchid Chemicals, Plethico Pharma and Ranbaxy Laboratories. Sales growth is muted for Dishman Pharma, Divi’s Labs, Dr Reddy’s Labs and Sun Pharmaceuticals. GSK Pharma is expected to improve its performance with double-digit growth in net sales, while Dr Reddy’s Labs, Orchid Pharma and Ranbaxy Labs are likely to turn around.
Aurobindo Pharmaceuticals’ shares gained the most in the past eight months, up 732 per cent over its 52-week low on March 9. Analysts expect the company’s sales to grow by 39 per cent and a four-fold rise in net profit in 2009-10, on the back of change in the product mix. Expansion of manufacturing capacities, vertical integration and the building of a strong product pipeline, the supply arrangement deal with Pfizer and the potential of similar deals with other multi-national corporations are expected to ensure a ramp-up in revenues and earnings in the coming years.
Ranbaxy Laboratories has moved up by more than 200 per cent over its 52-week low, as analysts expect the company to come into the black in 2009-10 from a net loss last year. The launch of the generic drug, Valtrex, in the US is expected to fetch about Rs 850 crore at the current rate of exchange and a net margin of 60 per cent leading to a profit of $111 million (Rs 515 crore) during the exclusivity period. The pharma analyst at Kotak Institutional Research cautions, though, that the company’s problems with the US drug regulator, the FDA, aren’t over.
Dr Reddy’s Labs have gained over 200 per cent since March on robust growth prospects. Analysts expect the company to post a turnaround in 2009-10, with a net profit of Rs 820 crore as against a net loss of Rs 917 crore in 2008-09. Going forward, the company’s alliance with GSK Pharmaceuticals is expected to be a revenue driver in a few years. According to the analyst at Edelweiss Research, margins in this business are expected to be equal or higher than the current branded generics portfolio. However, this deal also includes the critical Russia market, which could impact the company’s Russian sales, indicates analyst.
Cipla surged to its all-time high level in November, up 86 per cent since its 52-week low on January 22. The company expects to perform well in 2009-10, with net sales growth of around 18 per cent, while net profit is expected to be up by 37 per cent. Recently, the company had entered into a joint venture with a Chinese company for bio-similars and it is planning to bring out the JV’s first product by 2010.
| A DOSE OF GROWTH | ||||||
| Net sales | Net profit | |||||
| FY2009 | FY10E | FY11E | FY2009 | FY10E | FY11E | |
| Aurobindo Pharma | 3077.30 | 3890.80 | 4458.55 | 100.26 | 489.85 | 616.45 |
| Cadila Healthcare | 2862.40 | 3522.27 | 4197.93 | 303.08 | 418.10 | 521.93 |
| Cipla | 4960.60 | 5831.04 | 6659.96 | 771.02 | 1069.68 | 1,230.08 |
| Dishman Pharma | 1062.36 | 1128.40 | 1342.83 | 146.19 | 148.87 | 195.70 |
| Divi's Labs | 1180.34 | 1223.00 | 1403.00 | 416.64 | 397.10 | 483.30 |
| Dr Reddy’s Labs | 6900.63 | 7243.98 | 8163.03 | -917.24 | 823.55 | 1,017.65 |
| GSK Pharma | 1699.02 | 1883.10 | 2102.45 | 576.57 | 591.09 | 606.55 |
| Glenmark Pharma | 2093.02 | 2485.13 | 2832.77 | 193.47 | 307.87 | 549.53 |
| Jubilant Organosys | 3517.98 | 4031.10 | 4617.40 | 283.18 | 480.05 | 513.25 |
| Lupin | 3,775.88 | 4,756.03 | 5,722.93 | 501.54 | 638.73 | 814.60 |
| Orchid Chemicals | 1,260.03 | 1,833.00 | 1,913.00 | -48.99 | 69.60 | 153.70 |
| Piramal Healthcare | 3,281.10 | 3,732.33 | 4,282.47 | 316.25 | 464.20 | 596.90 |
| Plethico Pharma | 969.89 | 1,323.00 | 1,576.70 | 123.35 | 223.50 | 286.10 |
| Ranbaxy Labs | 7,241.41 | 6,999.57 | 8,767.57 | -951.2 | 118.70 | 1,093.60 |
| Sun Pharma | 4,272.30 | 3,829.60 | 4,377.88 | 1,817.73 | 894.84 | 1,078.85 |
| Torrent Pharma | 1,586.52 | 1,863.23 | 2,130.78 | |||
