Growth rates to moderate for the pharma sector
According to Sharekhan, the growth of pharmaceutical companies in its own universe is expected to moderate in Q3FY2022 after a series of quarters in the past with a double-digit growth.
“The growth is expected to be slowed down by heightened competitive pressures, lack of new product approvals in the US business. On the other hand strong growth in the Indian Pharmaceutical market (IPM) due to the revival in acute therapies bodes well from a growth perspective. Further, high operating margins’ base in Q3FY21, increased raw material costs, high logistics costs could pressurize margins of pharma companies in Q3FY22, leading to a decline of 1.3% y-o-y in earnings. Amongst the companies in the universe, we expect Gland Pharma, Biocon, Divis Labs and Abbott India to outperform for the quarter,” the brokerage has said.
Growth prospects remain bright
According to Sharekhan, Indian pharmaceutical companies are better placed to harness opportunities and post healthy growth going ahead as they are competitive globally and hold a sizeable market share in most markets.
“Moreover, other factors such as – 1) improving growth prospects in the US backed by rising preference for specialty / complex generics (including biosimilars) and injectables 2) Revival in the IPM which is expected to stage a close to double digit growth in FY22, 3) emerging opportunities in the API space would be key growth drivers and 4) benefits from the PLI scheme offered by the Government of India. The area of vaccines could also offer growth opportunities for Indian companies. Collectively, this points towards a strong growth potential going ahead for pharmaceutical companies,” the brokerage has said.
Midcap pharma stocks to buy
Sharekhan has listed 6 pharma stocks to buy from its analysis, including names like Laurus Labs, Sanofi India, Abbott India, Caplin Point Laboratories, Metropolis, Alembic Pharmaceuticals.
The brokerage has also listed some of the large caps pharma stocks to buy including names like Cadila, Divis Labs, Dr Reddy’s, Sun Pharma, Biocon, IPCA and Gland Pharma.
The pharma index over the past almost 24 months has consistently outperformed the benchmark indices reporting a sturdy 69% returns as compared to a 48% returns by the benchmark.
“Strong outperformance is expected to continue going ahead as well. We see this translating to a multi-year bull run for pharmaceutical companies. Indian pharmaceutical companies are among most competitive ones globally and, over the years, have developed strong capabilities, which have laid the footing for strong growth ahead. The confluence of other factors including improving growth prospects in exports as well as domestic markets and focus on specialty/complex products in addition to emerging opportunities in the API space would be key growth drivers. Better growth prospects in the domestic market could benefit India-focused MNCs. Collectively, this points towards a strong growth potential, which would unfold. Based on this, we have a Positive view on the sector,” Sharekhan has said.
The above stocks are picked from the brokerage report of Sharekhan. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. As on date of the article, the author and his family do not own any of the stocks that are recommended in the above article
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