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: A bitter pill? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 18, 2007

    Pharma: A bitter pill?

    In the past three months, the pharma sector once again failed to enthuse the investors, which can be gauged from the fact that while the Sensex notched gains of around 6% between July and September 2007, the Healthcare index lost around 5%. In fact, among the 12 companies under our coverage, only 2 managed to outperform both the BSE Healthcare Index and the Sensex. The two broad factors that could be attributed to the dismal performance was the impact of the rupee appreciation and the rise in raw material costs due to the higher costs of intermediates imported from China. In this article, we shall take a look at some of the top gainers and losers during this period and the outlook for the industry going forward.

    Pharma: Top gainers and losers from July 2007 to Sept 2007
    Company Price on
    Sept 17, 2007 (Rs)
    Price on
    Jul 02, 2007 (Rs)
    % Change
    BSE Sensex 15,504 14,664 5.7%
    BSE Healthcare 3,669 3,850 -4.7%
    Top gainers    
    Glenmark 382 334 14.3%
    Ranbaxy 410 366 12.2%
    Top losers      
    Novartis 294 379 -22.5%
    Cipla 172 210 -18.2%

    Glenmark: Not surprisingly, Glenmark continued to reward shareholders and emerged as the top gainer amongst the pharma companies under our coverage gaining 14%. The company once again reported robust numbers for 1QFY08 with the topline and bottomline growing by 92% YoY and 206% YoY respectively backed by a strong performance in the exports markets of the US and Latin America. The out-licensing deals entered into by the company with Forest Labs and Merck KgaA continued to generate interest in the stock and the company is on the lookout for a partner for its third molecule GRC 6211 for osteoarthritis and dental pain. Going forward, while the ramp up in the US and Latin American operations are expected to contribute to the overall performance, any adverse developments on the R&D front could impact the receipt of the milestone payments for the 2 out-licensed drugs.

    Ranbaxy: After the lukewarm response accorded to Ranbaxy in the past one year, the stock was on the investors' radar in the last two and a half months notching gains of 12%. While the company has been aggressive on the Para IV front, Ranbaxy of late has started to bring some balance to its product portfolio by settling the patent challenges with the innovators. This will not only mitigate further legal costs but will also provide some sort of certainty to the company in terms of generating revenues from these drugs. Case in point is the settlement of its suit with the global innovator GSK Plc for the latter's blockbuster drug 'Valtrex'. Thus challenging patents and settling some of them has ensured that Ranbaxy gets the 180-day exclusivity every year till FY10 ('Pravastatin 80 mg' in FY08, 'Valtrex' in FY09 and possibly 'Lipitor' in FY10).

    The laggards were...
    Novartis: Novartis emerged as the top loser during this period falling by 22.5%. Novartis reported poor set of numbers for 1QFY08 with the topline declining by 1% YoY. The pharma division (around 70% of revenues) was at the receiving end due to price control being imposed on one of its key products 'Tegrital' leading to the overall decline in revenues. Underperformance of the MNC pharma sector in general and no patent being granted for its anti-cancer drug 'Glivec' also further added to the woes.

    Cipla: Cipla also received a battering during this period losing by as much as 18%. The company reported a lackluster performance in the last two quarters due to a plethora of issues plaguing the company. These were considerable slowdown in its exports (API exports in particular), appreciation of the rupee and rising raw material costs to name a few. While the ramping up of ANDA approvals for its partners will enable Cipla to generate higher revenues on the back of higher API exports, these medium term pressures are expected to continue.

    To conclude...
    In the past few months, the Indian pharma industry has been plagued by two problems. First has been the sharp appreciation of the rupee against the dollar, which has impacted revenues, as most of the pharma companies are dependent on exports. That said, the impact has not been that strong at the profitability level due to the natural hedge available in the form of imports and the fact that many of them have taken FCCBs on their books. The second problem has been on the raw material front. Many of the domestic pharma companies import intermediates (used for making APIs) from China, which is very strong in the manufacture of the same. However, China has curbed the export incentives for pharma products amongst others (to control its trade surplus) and as a result, the import of intermediates has become expensive thereby leading to a rise in raw material costs.

    While these issues are expected to weigh heavy on the performance of pharma companies in the medium term, from a long-term perspective, the outlook for the sector is positive with growth in generics expected to play a key role in driving revenues, albeit concerns regarding the increased competition and pricing pressure. With pressures on global pharma innovators to reduce costs and spruce up margins, the CRAMS model is also expected to benefit in a big way. For MNC pharma companies, which are heavily focused on the domestic market, introduction of new products will be critical. Considering all these factors and after giving due consideration to valuations, investors need to adopt a stock-specific approach while investing in the sector.

     

     

    Equitymaster requests your view! Post a comment on "Pharma: A bitter pill?". 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.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    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.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    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 18, 2017 (Close)

    MARKET STATS