The pharma sector has been the flavour of the season at the stock markets for a while now. However, investor interest seems to be restricted to three stocks: Ranbaxy, Dr Reddy's Laboratories and Cipla.
Information provided by Delhi-based mutual fund monitor Value Research shows that, as on 31 August 2001, the three companies made up for over 80 per cent of the pharmaceutical stocks held by many mutual funds.
Says Chescor International (which manages AGF India) fund manager Sachin Mahindra: "Pharma stocks account for about 4.5-5 per cent of the total fund size and we largely have these three companies in our portfolio. The other pharma stocks constitute a negligible percentage of the total fund size."
Adds Anup Maheshwari, fund manager (equities), DSP Merrill Lynch Investment Manager: "These three companies have shown the ability to tap the generic market in the US and have strong R&D capabilities." Naturally, the pharmaceutical portfolio of the two DSPML funds -- Equity Fund and Opportunities Fund -- is heavily loaded with Ranbaxy, Dr Reddy's and Cipla.
The preference for the three prominent pharma scrips can also be judged from the average daily trading volumes of pharma scrips on the Bombay Stock Exchange during September 2001. While Ranbaxy, Dr Reddy's and Cipla each had trading volumes of over a lakh shares per day (Ranbaxy led the pack with an average of over 15 lakh), the volumes recorded by companies like Novartis, Pfizer and Nicholas Piramal were less than 10,000 a day.
Explaining the investor preference, the head honcho of a Delhi-based pharmaceutical company says: "Most funds are reluctant to buy into companies with a market capitalisation less than $1 billion."
But, fund managers say it is the strong fundamentals of these companies that put them in demand. "These are the top three companies in terms of size and, initially in a sector, the bigger companies are traded first and then come the second rung of firms," says a Dundee India functionary.
Ranbaxy is the largest Indian pharma company, with the maximum penetration in terms of field-force and market share in generic drugs. Dr Reddy's outperforms the rest on the research and development and the generic front. Cipla gains because of a strong presence in the domestic market and in various niche areas -- including anti-AIDS and anti-ulcerants -- which have clocked healthy growth rates.
"After the success of Dr Reddy's' diabetes molecule, the international market realised that even Indian companies can produce new molecules," says IL&FS fund manager Suhas Naik.
These pharma companies have also been quick to realise the huge potential in the export market and have invested in research operations. They are now reaping the rewards of their foresight.
