INSUBCONTINENT EXCLUSIVE:
The sun is yet to pierce the veil of brooding regulatory clouds and shine on India’s biggest pharma company, leaving investors with only a
handful of alternative investment choices in a sector that theoretically holds great promise.
As a regulatory investigation continues into
Sun Pharma over whistleblower complaints, the stock’s revival from multi-year lows seems rather distant
Regardless of the fundamentals, the Street might not be keen to bottom-fish until clarity were to emerge on the outcome of the investigation
So, if not the Sun, what else under it
Aurobindo Pharma, Torrent Pharma, and Cadila Healthcare do look promising — although none are
devoid of specific concerns.
Aurobindo Pharma, with its success in backward integration and acquisitions, holds growth potential
Its acquisition of the generic business of Novartis is strategic, as is its foray into the Chinese market
At 2.6 times the sales and 20 times its trailing four quarters earnings, the Aurobindo stock is fairly priced.
There are, however, concerns
over the outcome of class-action suits, acquisitions not ramping up on expected lines and challenging conditions in the US market
Nevertheless, 87 per cent of the analysts tracking the stock have a buy recommendation.
Torrent Pharma, trading at valuations richer than
Sun Pharma, is another company with encouraging prospects.
Its acquisition of Unichem Labs in the domestic market, and growing business in
the US, Germany and Brazil, burnish its allure
The company fully redeemed its nonconvertible debentures worth Rs 500 crore last month.
Issues in integrating the acquisition, changing
dynamics in the US business and future regulatory scrutiny are the likely risks.
A strong pipeline of products, an acquisition in the US
market, and the foray into biologics and vaccines should underpin growth at Cadila Healthcare
While the move to part-finance its subsidiary Zydus Wellness to acquire brands of Heinz India did raise concerns, the company’s sound
balance sheet provides sufficient confidence
About 70 per cent of the analysts tracking the stocks of Torrent and Cadila have buy recommendations on them.
While there are
company-specific issues, pharma companies are generally facing headwinds in the form of price erosion, increased litigation and competition,
FDA scrutiny in the US, domestic price controls, and the gradual shift locally to generic drugs
Companies are responding by increasing cost efficiencies, making strategic acquisitions, and investing in limited competition products –
bets that may work or fail.
So, investing in pharma stocks now may seem similar to playing the mine-sweeper game.
