Oct 30, 2000|
Indian pharma: Back with a bang
Indian pharmaceutical companies seem to have found favour with Dalal Street last week. Buoyed by good results and a desire, on the part of operators, to diversify their risk Indian pharma companies seem to have emerged as an oasis amidst a weak sentiment, across sectors. We take a relook at the current favourites.
Dr. Reddy’s Laboratories (CMP: Rs 1326): The one stock, which nobody wants to sell is DRL. This is partly due to the fact that the company boasts of arguably one of the best research pipelines in the sector. The second reason is the company’s ability to surprise analysts and investors alike by beating market expectations. Despite a sluggish domestic outlook, DRL has again managed to report a 25% growth in topline in the first half, almost double the growth of the industry. And this, when the company reported a 20% growth in the first five months which implies a breathtaking 50% growth in the month of September 2000. This could be due to the fact that the company has diversified its export basket in the current year moving away from its dependence on Russia in the current year.
However, there are straws in the wind. For one the stock has been removed from the model portfolio of Morgan Stanley Dean Witter. This could impact sentiment in the short term. Second, despite the impending merger with Cheminor Laboratories and American Remedies, the fact remains that the current valuation implies an earnings multiple of almost 40 times FY2001 earnings even assuming a doubling of net profits post merger.
Ranbaxy (CMP: Rs 701): The big daddy of the Indian pharmaceutical industry gave a pleasant surprise to the market with better than expected results last week, if one were to exclude the milestone payment the company received last year. However, Ranbaxy President, Dr, Brian Tempest said, over the weekend, that the company did not expect to get US approval for the launch of its drug cefuroxime axetil this year. Glaxo–Wellcome is the original patent holder for this cephalosporin and has launched a court case against Ranbaxy alleging patent infringements. This could delay the launch of the drug till next year. The current stock valuation implies an earning multiple of 40 times even including an US $ 5 m milestone payment in the last quarter of the current year.
Sun Pharma (CMP: Rs 534): With the markets overcoming fears regarding the its US affliate Caraco’s losses, this seems to be one of the best investment bets currently, among the Indian pharma sector. Apart from the fact that it’s second quarter results were impressive (net profits up 41% on the back of 35% growth in the topline), the company has been able to fine–tune its export strategy as well (overall formulation exports in the second quarter have risen by almost 50% in the second quarter vis-à-vis a 39% growth in the full first half). At the current valuation the stock rules at 19.4 times FY2001 earnings. Besides, the management has already stated its intention to amalgamate Sun Pharma Exports, the company’s 99.38% subsidiary into Sun Pharma. This would add roughly another Rs 130 m to the company’s expected profits of Rs 1265 m in FY2001. The per share earnings work out to around Rs 29.85 and this implies an earning multiple of 18X at current valuations. Even if one were to deduct the entire losses accrued by Caraco so far (i.e. Rs 437 m) the earnings work out Rs 20.50 and the current stock price implies an earnings multiple of 26 times.
Cipla (CMP: Rs 895). It’s different. Currently ranked next to Ranbaxy in the domestic pharma sweepstakes, Cipla is the most nimble in terms of adjusting to the changing market scenario. The company managed to grow its topline by 20% last year despite a tough year for antibiotic companies, as the segment faced a slowdown. The company responded by aggressively venturing into unbranded generics to maintain market share. (In the current quarter the company has managed to grow sales by an impressive 35% with the net profit has jumped 44%.)
Last year Cipla became the first Indian company to manufacture non–CFC based inhalers under the brand name Asthalin HFA. With CFC based inhalers to be compulsorily phased out by 2010, this segment should see a good growth in the future. At present, Cipla has a presence in all the molecules in the asthma segment. The anti–asthma products are expected account for almost 22% of the company’s turnover in the coming year.
Even in R & D, Cipla has consciously chosen a different route and that is to develop better processes for the manufacture of difficult to synthesise molecules. It is offering these intermediates and bulks to innovators and major generic companies. For this purpose it has filed 33 Drug Master Files in areas such as asthma, cardiology and oncology.
The current valuation implies an earnings multiple of 30 times first half annualised earnings. If one takes into account only the second quarter results, the earnings multiple works out to 26 times. With the management expecting to sustain second quarter earnings, the stock valuation too, is expected to sustain.
More Views on News
Aug 14, 2017
A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.
Aug 14, 2017
GST impact coupled with price erosion in US leads to lower profits for the quarter.
Aug 8, 2017
Profits plunge due to higher raw material costs.
Jun 16, 2017
Here's what you can expect from The 5 Minute Wrapup in the coming months and years.
Jun 23, 2017
Net Profit lower due to exceptional items in the previous year.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407