X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Pharma: Back in action? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 20, 2006

    Pharma: Back in action?

    The BSE Healthcare index has not been able to keep pace with the broader market movement and infact, has under-performed the BSE-Sensex over the last one year. This can be gauged from the fact that while the Sensex gained 57% in the last one year, the BSE Healthcare index gained 32%. Here is our take on the same.

    The fundamental view...
    An improved scorecard: Pharma companies have limped back to normalcy in the last three quarters after the VAT and MRP-based-excise-related concerns that mired performance in the first quarter of the calendar year 2005. Most of these companies have performed well in the domestic market in the last three quarters, signaling a revival in fortunes. Exports have also contributed to growth, especially in the semi-regulated markets of Russia, Latin America and Asia. However, severe price erosion in the US generic markets continued to bog down companies like Ranbaxy and Dr.Reddy's and is likely to remain a cause for concern going forward.

    The 'A' word: Consolidation in the global generics industry has been gathering steam, as major players are looking to acquire scale (Teva's acquisition of Ivax and Sandoz's acquisition of Hexal and Eon Labs are examples of the same). Domestic companies, not wanting to be left behind, are also firming up plans to acquire companies abroad and increase geographical reach. Dr.Reddy's acquired Betapharm recently (Germany's fourth largest generics company). This acquisition is pegged to be the largest in the Indian pharma industry. Wockhardt and Ranbaxy have clearly identified acquisitions as a part of their growth strategy.

    With intense competition and brutal price erosion, the consolidation story is expected to gather momentum. Amidst the brouhaha surrounding the news of an acquisition, what needs to be considered is whether the acquired company is worth the price paid. In this context, the product profile, geographical spread, size, revenue and profitability are the areas to watch out for. If the synergies exist and the management is able to effectively integrate operations, then the acquisition will provide value, even if the payback period is long.

    New product launches: As we mentioned in last week's write-up, prospects of new products launches from the parent's global portfolio has led to the sharp rally in the MNC pharma stocks such as GSK Pharma, Pfizer and Aventis. Here again, investors should note that these product launches are likely to take around two to three years to capture significant market share and investors need to accordingly attune their investment horizon.

    Going hand-in-hand: Most of the pharma companies, be it domestic or MNC, are adopting the partnership route to drive growth. To cite examples, Cipla is focusing on contract manufacturing, wherein it supplies bulk drugs at a cheaper cost to global generic companies. With the product patent law now in place in India, contract research is another area that is attracting interest from innovator companies in a bid to prune their R&D costs. Domestic pharma majors like Ranbaxy and Dr.Reddy's are entering into collaborations with international pharma companies to carry out their R&D programme, which is a high-risk-high-return business. In-licensing is also proving to be the 'in-thing' for all companies. This is because competition in the domestic pharma space is set to hot up and a varied product portfolio is critical to sustain growth.

    We continue to remain positive about the growth prospects of the pharma companies, who are leaders in respective focus areas (be it generics, contract manufacturing, MNC plays, biologics and the like). As far as the domestic pharma majors are concerned, though the likes of Dr. Reddy's and Ranbaxy have had a roller coaster ride over the last three years, the prospects of these companies are not based on one or two drugs (as it is made out to be). It is therefore, pertinent to take a long-term view.

     

     

    Equitymaster requests your view! Post a comment on "Pharma: Back in action?". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    This Company Beat the Business World's 'Three Killer Cs' (The 5 Minute Wrapup)

    Aug 16, 2017

    And what it has in common with beating the stock market too.

    5 Steps To Become Financially Independent (Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Let's Hope This Correction Continues (The 5 Minute Wrapup)

    Aug 14, 2017

    Last week's correction is making a number of Super Investor stocks look a lot more attractive...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 16, 2017 (Close)

    MARKET STATS