Dr Reddy's to Lupin, Indian pharma players get a leg up from domestic sales

Dr Reddy's, Lupin, Sun Pharma and Cadila Healthcare outperformed the local industry growth in recent months, a trend expected to continue

The BSE Healthcare index has outperformed  the broader markets for the past 3-4 weeks, as drug makers posted double-digit growth in the domestic market on an aggregate basis in July and August. 

The domestic pharma market grew 9.4 per cent in August — following 13 per cent growth in July — which has helped drive up investor sentiment. Among companies, Dr Reddy’s, Lupin, Sun Pharma, and Cadila Healthcare have outperformed the pharma market in August, say analysts citing AIOCD data.

In fact, Dr Reddy’s has significantly outperformed the IPM (Indian Pharma Market) for the sixth consecutive month, in line with the management guidance, say analysts at SBI Capital. The company is changing its strategy with increased focus on India, and rationalising its portfolio in the US by shifting focus to only niche products and injectables. 

Though an anticipated delay in a key product approval in the US had kept investors’ confidence subdued, the stock has rebounded with gains of more than 8 per cent in September.

Lupin, too, posted domestic sales that were ahead of the market’s growth. According to analysts, this was driven by its high exposure to chronic therapies (half of its domestic revenue). This should help mitigate concerns, regarding growth in the US market, led by regulatory hurdles and consequently product approvals. 

Both Dr Reddy’s as well as Lupin featured in the top 10 growing companies in the country. 

The Street is also positive on Cadila Healthcare’s comeback. The company has clocked double-digit growth for the third consecutive month. Earlier, with Cadila rationalising its domestic portfolio, sales grew only in single digits. 

However, not only does its sales growth instil confidence now, but it also gives credence to the management’s earlier commentary that portfolio rationalisation will be done by Q1FY20 and growth will return to normal.

Sun Pharma, the largest player by market value, grew ahead of the domestic pharma market for the second consecutive month, say analysts. They, however, remain cautious on Sun Pharma awaiting the outcome of a forensic audit by Sebi. 

Among others, Alkem Laboratories appeared in the list of the top 10 fastest growing companies, while Ajanta Pharma and Torrent Pharmaceuticals, too, are expected to benefit from strong growth in the domestic market, considering their focus and exposure to India.

All this is helping firms offset challenges that they face in the world’s largest healthcare market — US. 

Domestic sales are expected to remain healthy for them, which, along with reasonable valuations, suggests some of these quality names could be good investments.