Given the current regulatory issues such as the USFDA, it comes as no surprise that the Pharma Sector in India has posted unhealthy returns. However, there seems to be some ray of hope amidst the cataract of shrinking returns. It comes from a the stock of a much smaller company in the sector — Cadila Pharmaceutical Ltd. While the bigger and more popular names in the Indian pharmaceutical industry such as Sun Pharma, Lupin, Dr Reddy’s Lab and Cipla seem to have posted lacklustre returns, Cadila and Aurobindo Pharma are two scrips which have outshone the peers.
The healthcare stocks benchmark BSE Healthcare Index has returned just 0.21% so far this year. The poor returns woes continue for this sector, with the implementation of GST likely to dampen the prospects of returns further. The pharmaceutical sector in India is largely fragmented with the top three giant firms Dr Reddy’s Lab, Lupin, Cipla together controlling not more than 20% market share.
The giant pharma companies’ shares have given negative returns so far this year, with Sun Pharma, Lupin, Dr. Reddy’s Lab and Cipla falling 8.21%, 22.11%, 11.16% and 1.59%, respectively. These numbers may worry the optimistic investors too.
But, all is not unwell with the sector. There are pain killers in the form of Cadila Ltd and Aurobindo Pharma. Shares of Cadila Healthcare have returned nearly 47% so far this year, even in the face of the structural challenges to the sector. Cadila has beaten even the equity benchmark BSE Sensex, which has given a stellar performance this year, rising 19.1% year-to-date.
Further, it is not without reason that Rakesh Jhunjhunwala has Aurobindo Pharma in his portfolio. After the Q1 results, the ace investor had questioned the management about the company’s sales. He had also raised queries with the management about the vaccines division. Aurobindo Pharma has YTD returns of 9.71% as opposed to below 0.5 % for the S&P BSE healthcare index. Today, Aurobindo Pharma shares jumped further 8%, adding to the YTD returns mentioned here, on the news that the USFDA has approved its drug for treatment of chronic kidney diseases.