Pharma: Domestic over MNC... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Pharma: Domestic over MNC...

Nov 14, 2006

If the results over the last few quarters are anything to go by, the domestic pharma companies have performed better than their MNC counterparts. This has also been reflected in the stock prices, which have seen domestic pharma stocks garner stronger investor interest as compared to MNC stocks. However, the scenario was the opposite a year back when relatively poor results announced by domestic pharma companies prompted investors to flock to MNC stocks, which had the 'more stable' tag attached to them. So what has happened in the past one year for the shift in preference? Let us understand.Domestic companies: Domestic pharma companies have performed well over the last few quarters mainly due to increase in revenues from the highly competitive US market, strong sales in the domestic market and contribution from acquisitions. In the US market, these companies, despite increasing competition and price erosion, have been able to deliver better results due to benefits from 180-day exclusivities received for certain products. For instance, Ranbaxy and Dr. Reddy's (as authorised generic) have benefited from 'Zocor', Cipla from 'Proscar' and 'Zoloft' (the company is the API supplier to Teva, who has received the exclusivity period for these drugs) and Sun Pharma from 'Ultracet'. Besides this, the acquisitions made by domestic companies either in the generics space or the custom manufacturing space have also started contributing to the overall performance.

Also, while the product patent law is likely to result in a slow down in new product launches in the long-term, the impact up till now has not been significant. Most of these companies have adopted the in-licensing route to bridge the product gap. In fact, barring issues such as VAT concerns in 4QFY05, which affected the entire Indian pharma industry, domestic companies have been posting strong growth rates in the Indian market.

MNC companies: New launches from the parents' product stable will be critical for MNC pharma companies going forward, as this is one factor that gives them an edge over their domestic counterparts. Besides this, MNC majors are looking at in-licensing products from other global companies given their strong reach in the domestic market. That said, barring Pfizer, which introduced 3 products at the start of the year, some of the other MNC companies have not yet made any significant launches. Launch of patented products in the country is unlikely to take place before late CY07 or CY08. Meanwhile, the existing products of the companies are driving the current growth in revenues.

MNC pharma stocks have been accorded higher valuations in comparison to domestic companies, as the former can rely on their parents' strong research pipeline to launch products in the country and also due to the fact that their revenue streams tend to be relatively more stable. It must be noted that these companies are domestic market-centric. On the other hand, domestic companies, despite increasing challenges in the global generics market, are focusing on widening their geographical reach to de-risk their revenue profile. Thus, while any adverse conditions in the domestic market will affect MNC companies more than their domestic peers, volatility in revenues in overseas markets will affect Indian companies to a larger extent.

Challenges abound for both domestic and MNC players going forward. Intense competition and price erosion (both due to competition and regulatory changes) in the global generics market and integrating acquisitions will test the mettle of domestic companies. Similarly, for MNC majors, launch of patented products may not be that easy chiefly in terms of pricing of these products. Given the fact that the government intends to make medicines affordable to the public, prices of patented products are most likely to be subject to negotiation.

Each business model has its pros and cons. Therefore, whether MNC or domestic, what is important is the ability of companies to innovate even in adverse conditions and consistency in performance over the years. And after considering all these factors, valuations are important and certainly cannot be ignored.

Equitymaster requests your view! Post a comment on "Pharma: Domestic over MNC...". Click here!


More Views on News

Wait! Don't Chase Smallcaps Now (Profit Hunter)

Sep 18, 2020

Let the markets take a breather before you jump in.

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

A Contrarian View on Whether You Should Load Up on Small Caps podcast (Views On News)

Sep 17, 2020

Rahul Shah discusses whether the SEBI circular is the perfect time to start investing in good quality small caps

Is It Worthwhile Investing in Debt Mutual Funds As the Indian Economy Sags? (Outside View)

Sep 17, 2020

Two years since the IL&FS crisis that exposed the credit market, the COVID-19 pandemic exacerbated the credit risk, making debt mutual fund investment discomforting.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

I Recommended this Stock over Page Industries because it's Relevant to Doubling Your Income (Profit Hunter)

Sep 7, 2020

Things are not often what they seem in the market and how you can take advantage of this.

The NASDAQ Whale Could Harm Your Portfolio (Fast Profits Daily)

Sep 7, 2020

The discovery of Softbank pushing up prices on the NASDAQ will cause volatility in the market. Stay alert!

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 18, 2020 12:49 PM