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As pharma stocks hit 5-year lows ‘It could be time for select buys’

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Mumbai: Shares of pharma companies slumped in firm a market on Wednesday as a string of adverse news flow and weak corporate earnings weighed on sentiment.

Investors may need to brace for some more declines in these shares in the foreseeable future but this weakness could be an opportunity to buy select stocks.

Biocon, Strides Shasun, and Neuland Laboratories are among the top picks of analysts. The Nifty Pharma index fell 1.4 per cent to 7,744.30 on Wednesday after hitting a 5-year low of 7,550.55 intraday.

The Sensex rose almost 1 per cent. Glenmark Pharma, the biggest loser in the sector, fell 7.8 per cent to Rs 383.25 after the company’s profit declined 53 per cent to Rs 109.3 crore in the June quarter.

Dr Reddy’s ended 2 per cent lower after falling as much as 8 per cent during the session following reports that the company could have to delay the launch of its generic version of contraceptive NuvaRing.

Sun Pharma, despite strong June quarter results, fell 4.7 per cent. Various pharma shares such as Lupin, Cadila, Sun and Glenmark have fallen about 40-60 per cent in the last three years because of regulatory issues in the US.

With their generic drug business coming under pressures, many of their earnings have taken a hit.

Fund managers said the situation has improved. “When we look at the rate of change over the last one year, there has been improvement in the generic markets in the US, companies are taking cost cutting measures and there has been stability in domestic business which was facing GST challenges last year,” said Sailesh Raj Bhan, deputy CIO - equity investments, Reliance Nippon Life Asset Management. Share valuations of many companies have fallen from their highs three years ago but many, like Sun, Lupin and Cipla, are still not cheap because of pressure on earnings, said analysts. The Nifty Pharma index has fallen 5.9 per cent in the last one month, underperforming the benchmark Nifty which has fallen 4.8 per cent during the same period.

Analysts said the price erosion in the US, which has been the chief reason for the downturn in pharma sector stocks in the last few years, seems to be settling down and most companies are reporting 8-12 per cent growth in India business. “Even regulatory headwinds seems to have reached a peak.

Little bit of time correction is left but is a good time to start looking at pharma," said Sunil Singhania, founder, Abakkus Asset Manager LLP.




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