Big pharma's muscles swelled in FY13

Market capitalisation for majors grew 40%; patent expiries in advanced economies a big help

With another financial year ending, pharmaceutical companies have seen huge growth in their market capitalisation. The top 10 stocks (by market cap) showed about 40 per cent growth last year.

Though some stocks such as Ranbaxy, GSK Pharma and Cadila Healthcare disappointed the investors, the rest of the top healthcare stocks saw decent growth. Wockhardt, which came out of capital debt restructuring, topped the league, with 235 per cent growth in market capitalisation. From Rs 599 a share in March 2012, it touched Rs 2,005.8 on March 31, 2013. The market cap went up to Rs 21,979 crore from Rs 6,563 crore in March 2012.

Next to Wockhardt, Glenmark achieved about 50 per cent growth in market cap, to Rs 12,530 crore from Rs 8,334 crore.

Ranjit Kapadia of Centrum Broking said, “Pharma stocks did well in FY13 due to good exports to the US market, depreciation of the rupee against the dollar and good growth in the domestic market. Indian companies could gain through patent expiry opportunities in the US market and good growth of already-launched generic products.”

Mumbai-based Wockhardt earns as much as 80 per cent of revenue from global markets, with US operations growing about 50 per cent in the December quarter. Lupin, similarly,  has strong presence in the US market and achieved growth of 18 per cent in market cap. This had touched Rs 28,153 crore on March 31 from Rs 23,704 crore on the same day a year before. Lupin earns 35-40 per cent of revenue from the US market.

Ramesh Swaminathan, chief financial officer at Lupin, said: “Increased focus on generic adoption to reduce healthcare spends in advanced countries, coupled with expiration of key patents in developed markets, is the most significant factor which contributed to the emergence of Indian pharmaceutical companies.” According to him, constant demand for reduction in manufacturing costs globally has presented Indian companies with great growth opportunities, specifically in advanced markets.

Mumbai-based Sun Pharma saw growth of 43 per cent in its market cap, at Rs 84,748 crore from Rs 58,977 crore a year before. Divi’s Lab, a leading entity in the active pharmaceutical ingredient market, recorded a growth of 28 per cent in its market cap.

According to Hitesh Sharma of Ernst & Young, the Indian government’s agenda on improvisation of healthcare also boosted the stocks of pharma & healthcare companies. Whichever stocks that did not perform had own issues with the companies, not related with the industry, he added.

However, Ranbaxy, GSK Pharma and Cadila did disappoint the investors. The market cap declined by 6.2 per cent, 4.4 per cent and 2.5 per cent, respectively. Cipla, another domestic major, improved its market cap (Rs 30,490 crore) by 24 per cent. In the domestic market, the pharma industry grew at 11-12 per cent, despite the slowdown in the economy and the GDP growth rate coming down.

“The pharma industry will continue to do well in FY14, due to increased exports to the US market and good growth of domestic business. However, the announcement of the National Pharmaceutical Pricing Policy would have a detrimental effect on sales and profitability of pharma companies for two to three quarters,” Kapadia added.