 "medicine, drug, pharma, med, pharmaceutical")
At a time when the street is busy gauging the impact on India Inc’s performance due to demonetisation, the rebound in the Indian pharma market (IPM) growth to 15.3 per cent during November is heartening. It is good news for companies whose stock price has seen a lot of volatility, first on the back of the US presidential polls, followed by demonetisation. Experts, however, said demonetisation can at most lead to temporary disruption in stockist-level sales, and the US election outcome looks more positive than negative. The growth numbers in November are indicators of the same.
Among key companies, most reported healthy growth. Sun Pharma and Torrent saw strong sales growth of more than 20 per cent, an outperformance of 560-780 basis point (bps) to IPM growth. Glenmark Pharma, Cadila Healthcare and Lupin, too, were not far behind and outperformed pharma market growth by 200-460 bps. Analysts at Religare Institutional equities said strong growth in November, as indicated by AIOCD AWACS data, has largely been due to the low base effect and strong anti-diabetic and cardiac sales. The chronic market has seen strong high double-digit growth.
While this is positive, investors need to choose from companies having clear US FDA status and a good pipeline of complex generics in addition to strong India growth. These attributes could help pick the future winners.
For instance, Sun Pharma remains impacted with its key Halol plant getting US FDA observations restricting imports to the world’s largest health care market. Similarly, Cadila Healthcare’s Moraiya plant is under the FDA's scanner and till these issues are resolved, new launches in the US and consequently growth will remain impacted.
Lupin, on the other hand, has not only reported strong India growth but its Goa plant has got clearance from the US FDA. Approvals for new launches have started picking pace and as more approvals for larger products fall in, it will boost growth.
Glenmark has consistently reported growth in the domestic market. With no FDA-related issues, the company recently launched generics of cholesterol-lowering Zetia brand on exclusivity. These are expected to garner $200-250 million in revenue during the exclusivity period, substantially reducing debt.
In the mid-cap space, Natco Pharma remains in the limelight due to strong US business outlook with many new launches planned in next 12 months. Analysts at Jefferies expect Natco’s FY16-19 EPS to clock a CAGR of 55 per cent. After FY19, too, they estimate more than 20 per cent earnings growth and believe it is one of the best-positioned Indian generics players to face sector headwinds.
