Second rung pharma stocks at new yearly lows

Kailash Rajwadkar

Mumbai, Aug 26: The cascading Sensex along with a paradigm shift in the trading of pharma scrips with the introduction of rolling settlement has seen ‘A’ group pharma scrips being revalued at lower price earnings (PEs).

As a result, ‘B1’ pharma scrips too are following suit with most stocks touching yearly lows. Industry sources say that valuation of the sector in general and small and medium pharma companies in
particular have changed significantly and the current interest is restricted to large cap stocks.

To name a few, Glaxo India is being currently traded at a price earnings ratio of 20.2 as against a PE in excess of 40 some months ago while the PE of Novartis is languishing at 12.4 as against around 35 sometime back.

The PE of Aurobindo Pharma has come down to 5.8 from a high of 31 while that of Aventis Pharma has gone down to 18.4 from around 27 when the scrip was traded at its high during the year.

The PE of most pharma companies have come down by half with the only exception being Dr Reddy’s for obvious reasons and SmithKline Beecham Pharma, which continues to have a consistent PE in a depressed market.

On the ‘B1’ pharma scrips, analysts say that with the exception of Glenmark Pharmaceuticals and Torrent Pharma, none of the other pharma scrips are making any effort on basic/discovery R&D.

The lower rung ‘B1’ companies are potential takeover targets since they are companies with only a a clutch of formidable brands, they say.

Analysts were, however, more-or-less upbeat on Glenmark and say that, despite doing everything right, the stock remains undervalued.
Glenmark is the among the fastest growing pharma companies with a
30-per cent MAT (moving annual total) growth for June 2001, as per ORG data, as against the industry growth of around nine per cent, sources said.