Indian pharma stocks outshine global peers; Nifty Pharma rises 22.6%

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Published: April 10, 2020 2:40:39 AM

Indian pharma companies have also been in the news as some of them will increase manufacture of hydroxychloroquine as it is seen as one of the drugs that is effective in treating Covid-19.

The Nifty Pharma Index has jumped 22.6% in April 2020, while the broader Nifty50 is up 6%.The Nifty Pharma Index has jumped 22.6% in April 2020, while the broader Nifty50 is up 6%.

Pharma stocks across the world are back on the radar of investors, as investors look for defensive plays. Indian pharma companies stole a march over listed global peers, with investors lapping up big names in the sector on falling rupee and attractive valuations.

Indian pharma companies have also been in the news as some of them will increase manufacture of hydroxychloroquine as it is seen as one of the drugs that is effective in treating Covid-19.

The Nifty Pharma Index has jumped 22.6% in April 2020, while the broader Nifty50 is up 6%.

The Bloomberg World Pharmaceuticals Index, which tracks 90 leading pharmaceuticals stocks in the world, has gained 4.5% in the last five sessions with Indian firms such as Torrent Pharmaceuticals, Sun Pharmaceutical Industries, Divi’s Laboratories, Dr. Reddy’s Laboratories and Abbott India topping the list with gains between 16% and 30%.

The sector, which is widely expected to remain resilient in the current downturn, trades at 23 times of its one-year forward earnings, which is a 10% discount to its five-year historical average. The rupee —the third worst performer in Asia — has declined 6.4% so far in 2020. The local currency touched a record low of 76.34 against the greenback on Wednesday.

Pharma companies tend to gain in falling rupee as major chunk of their revenue comes from abroad. For instance, Dr Reddy’s Laboratories and Torrent Pharmaceuticals generated 81.3% and 53.7% of their FY19 revenues from outside India.

Bansi Desai, analyst at HDFC Securities, said, “Our positive stance on Indian pharma is premised on sector’s relative resilience to Covid-19 disruption, favourable currency tailwinds and stable outlook for India and US business. India growth has picked up and we forecast 11% growth for covered companies over the next two years.”

Shares of major active pharmaceutical ingredients (APIs) players such as Sun Pharma and Dr Reddy’s Labs have surged over 40% from their March lows. Analysts pointed out, as Indian companies operate at about 35% of their plant capacity compared to 70-80% of Chinese counterpart, there is further room for expansion.

Even the volumes at pharma counters have peaked at a time when the overall markets trading with a thin volume as most dealers working through remote access with limited flexibility. While the combined five-day traded volumes at Sun Pharmaceutical Industries surged to near threefold against its six-month average, Dr. Reddy’s laboratories and Torrent Pharmaceuticals also witnessed similar surge of over twofold in their trading activities.

According to Kotak Institutional Equities, the domestic formulations segment will see a healthy growth in Q4 with 9-12% y-o-y organic growth for the sector, with limited impact of Covid-19 on domestic sales for the quarter, given that most companies have a cut-off date of around March 20 for booking sales.

However, market experts observe, disruption in demand and supply due to extended lockdown and delay in US FDA plant resolution on account of travel advisory could be key risks going forward for the sector.

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