The brokerage firm Sharekhan has maintained its constructive stance on pharma shares, even supposing Q4FY2022 was a poor quarter for pharmaceutical corporations, affected by greater value pressures as elevated uncooked materials prices and freight prices pulled down profitability.
The brokerage has given a “BUY” ranking to the shares of Zydus Lifesciences for a goal worth (TP) of ₹440, Cipla (TP- ₹1,150), Divis (TP- Rs. 4,900), Lupin (TP- ₹780), Solar Pharma (TP- ₹1,000), Torrent Pharma (TP- ₹3,540), Biocon (TP- ₹420), Laurus Labs (TP- ₹735), Sanofi India (TP- ₹9,250), Abbott India (TP- ₹22,780), Strides Pharma sciences (TP- ₹450), Dr Reddys Laboratories (TP- ₹5,550), Gland Pharma (TP- Rs, 3,770).
Sharekhan has given a “HOLD” ranking to the shares of Aurobindo (TP- ₹610), Ipca Labs (TP- ₹1,080), Granules (TP- ₹290). The brokerage has additionally given a “Constructive” ranking to the shares of Caplin Level Laboratories (TP- ₹895), Metropolis Healthcare (TP- ₹1,966), Alembic Prescription drugs (TP- Rs. 944) and Medplus Well being Providers (TP- ₹1,033).
The brokerage has mentioned in its analysis report that “Q4FY2022 was a weak quarter for pharmaceutical corporations underneath our universe, marred by greater value pressures as elevated uncooked materials prices, freight prices drove down margins. Greater pricing pressures within the US (for choose segments the worth erosion was in double digits) additionally added to the margin pressures. Efficiency of the India enterprise was robust, backed by a robust revival within the acute therapies whereas continual therapies sustained their progress momentum. Sustained elevated pricing pressures and excessive channel shares in choose segments, impacted the businesses’ US enterprise, slowing down progress. Consequently, whereas income progress was wholesome, nonetheless elevated value pressures resulting in a 220 bps y-o-y margins decline, resulted within the our universe’s earnings declining by excessive single digits.”
In keeping with Sharekhan Q4FY2022 was the third consecutive quarter, whereby pharmaceutical corporations had been impacted by surging value pressures. China-related points (together with vitality disaster) have impacted uncooked materials availability, resulting in sustained greater in enter costs. This was compounded by container shortages at ports, resulting in elevated freight prices. Additional with the markets throughout the globe opening up the advertising & promotions spends had been near regular ranges. This coupled with greater raw-material value and freight prices exerted margin pressures, resulting in a 220 bps y-o-y decline in OPM.
Indian pharmaceutical corporations are higher positioned to harness alternatives as they’re aggressive globally and maintain a sizeable market share in most markets. Furthermore, different components similar to 1) long-term alternatives within the US with rising desire for specialty/advanced generics (together with biosimilars) and injectables, 2) Anticipated wholesome progress in IPM, which is anticipated to stage near double-digit progress in FY2023 as properly, and three) Rising alternatives within the API house can be key progress drivers over the medium to long run; whereas within the close to time period, pricing pressures within the US and price pressures might act as headwinds, although transient in nature. Collectively, this factors in direction of a robust progress potential over the long run for Indian pharma corporations, mentioned the brokerage.
“Over the previous round two years, the Pharma index, has constantly outperformed the benchmark indices reporting a sturdy 50% returns as in comparison with a 37% returns by the benchmark. Sturdy outperformance is anticipated to proceed going forward as properly. Albeit over January 2022 until date, Nifty Pharma has underperformed the benchmarks, factoring in transient headwinds, which might drag the efficiency of corporations within the close to time period. Over time, Indian pharmaceutical corporations have developed robust capabilities and have confirmed to be a reliable supply for international pharma corporations. The confluence of different components together with give attention to specialty/advanced merchandise along with rising alternatives within the API house can be key progress drivers. Collectively, although near-term headwinds are more likely to maintain, longterm progress prospects are intact and, primarily based on this, we’ve a Constructive view on the sector,” Sharekhan has claimed primarily based on the valuations of the pharma sector.
Sharekhan has highlighted hostile regulatory adjustments, delay in plant inspections, and forex volatility as the important thing dangers to the monetary efficiency of the businesses within the sector which buyers ought to concentrate on.
The views and proposals made above are these of particular person analysts or broking corporations, and never of Mint.
Supply: Live Mint