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Nifty Pharma index at three-year low; what's ailing pharma stocks?

Thus far in CY17, the Nifty Pharma index has tanked nearly 6%

Puneet Wadhwa & Deepak Korgaonkar  |  New Delhi / Mumbai 

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Shares of pharmaceutical companies came under pressure on Tuesday with the Pharma index slipping nearly 3% to hit a 52-week low of 9,528.95 in intra-day deals, its lowest level since August 18, 2014 on the National Stock Exchange (NSE).

On the Bombay Stock Exchange (BSE) the S&P BSE Healthcare index, too, dipped nearly 3% or 429 points to 14,184 levels. By comparison, the benchmark indices, Nifty50 and the S&P BSE were trading 0.5% lower, respectively.

Thus far in the calendar year 2017, the Pharma index has underperformed with a fall of nearly 6%, as compared to a rally of around 15% in the Nifty50 and the S&P BSE

Among individual stocks, Lupin, Aurobindo Pharma, Divi's Laboratories, Glenmark Pharmaceuticals, Indoco Remedies, Strides Shasun and Wockhardt hit their respective 52-week low on the BSE in intra-day trade on Tuesday.

So what's ailing

Indian have de-rated by 10% over the last one year, but with product price erosion likely to increase, a further de-rating is expected, analysts say. Going ahead, analysts at expect the price erosion to increase to 10 - 12% from 7 - 8% currently, which will eat into earnings growth of most pharma companies.

This price erosion, they say, will be triggered by an increase in US FDA's approval for drugs that will increase competition and impact the financials going ahead. They expect ANDA approvals to increase from 650 to 1,000 in the next two years. All this, in turn will lead to de-rating of stocks.

"We maintain underperform on Lupin, Dr Reddy's and neutral on We prefer Cipla and Cadila, with a lower base and a good pipeline," point out Anubhav Aggarwal and Chunky Shah of in their recent report.

That apart, analysts are also concerned on the realisations from the export market going ahead for a select few. Sun Pharma, for instance, tanked 8% in trade on Tuesday to Rs 589 levels - the lowest since November 2016 - after its US subsidiary, Taro 25.9% year-on-year (y-o-y) fall in net sales for Q4FY17 to $196.4 million.

The company has attributed the fall to increased competition and a challenging pricing environment. The prospect of dipping revenues from the export market, analysts say, will loom large on the prospects of other Indian pharma companies as well that drive a chunk of their revenues from the overseas Meanwhile, is schedule to announce its fourth quarter & full year ending March 31, 2017 results on May 26.

"Earlier, the threat was mostly from US FDA observations / warnings and the subsequent action. This has been compounded by expectations of lower realisation from the export in the backdrop of Taro's March quarter numbers. Having said that, have underperformed since a long time and given the fall, they should bottom out soon. However, one needs to be stock specific here," explains G Chokkalingam, founder and managing director of & Advisory.

Analysts at have cut the target price for to Rs 1,200 (from Rs 1,250), Dr Reddy's Laboratories to Rs 2,200 (Rs 2,300), Rs 600 (Rs620), Cipla Rs 655 (Rs 675), Aurobindo Rs 750 (Rs 910), Cadila Rs 540 (Rs 560), Glenmark Rs 700 (Rs 760) and Torrent Rs 1,550 (Rs 1,770).

First Published: Tue, May 23 2017. 13:30 IST