Aurobindo Pharma, Glenmark and Sun Pharma are among the preferred picks of Sharekhan. According to the brokerage house, financial results of pharmaceutical companies for the first quarter ended June 30, 2016 were largely in line with expectations. Companies under the coverage of Sharekhan reported 13 per cent year-on-year growth in topline while operating profit margin jumped by 61.5 basis points year-on-year to 27.70 per cent. During April-June period, the US business of many pharma companies witnessed pricing pressure, but exclusive opportunities (gGleevec, gGlumetza), coupled with improved product approvals helped them to counter this pressure to some extent.
Profit after tax figures of pharma companies (under the coverage of Sharekhan) improved by 22.2 per cent on year-on-year basis. Sharekhan in a research report said, “Better product mix, big launches, approval for key products and cost control measures enabled the pharma companies to boost profitability, besides helping them to mitigate pricing pressure in the US market. However, Cipla reported weaker-than-expected numbers for the quarter ended June 30, 2016.”
The brokerage house is expecting steady earnings growth from pharmaceutical companies in 2016-17 and 2017-18 on account of favourable currency movements resulting in stronger US generic sales, and recovery in emerging markets and rest of world businesses. “Future growth is likely to be driven by the domestic market, which is witnessing a robust volume growth, along with new drug launches. Therefore, we continue to remain positive on the long-term prospects of the pharma sector. We also see headwinds on account of USFDA warning letters getting resolved, which could result in earnings upgrades going forward. We remain selective with respect to stock preferences,” Sharekhan said.