Pharma shares in focus; Dr Reddy's, Biocon, Lupin, Natco Pharma up over 3%

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Shares of pharmaceutical were in focus in an otherwise subdued market on Monday with Nifty Pharma index gaining nearly 2% against 0.17% decline in the Nifty 50 at 09:36 am.

Dr Reddy’s Laboratories, Lupin, and Biocon from the index were up in the range of 3% to 4%, while, Sun Pharmaceutical Industries, Cipla, Glenmark Pharmaceuticals, Cadila Healthcare, Aurobindo Pharma and Divi’s Laboratories up between 1% and 2% on the NSE. In comparison, the Nifty Pharma index, the largest gainer among sectoral indices, was up 1.7% at 9,683 points.

Natco Pharma, Morepen Laboratories, Granules India and Sequent Scientific were from the non-index stocks, up 5% each on the BSE.

Dr. Reddy’s Laboratories has rallied 4% to Rs 2,545 on the BSE in intra-day trade, after the drug announced the sale of its API manufacturing business unit in Jeedimetla, Hyderabad to Therapiva Private, an emerging generics pharmaceutical company. This divestiture is being done by way of slump sale (as a going concern) and includes all related fixed assets (land and building), current assets, current liabilities, and its employees.

Natco Pharma was up 6% to Rs 717 after the company and Mylan get a favourable decision for patent dispute in US Court.

Meanwhile,  going forward, IndiaNivesh Securities believe most pharmaceutical companies have set expectations for the year and see more of an upward bias than downward to forward estimates. 

“That said, we see overall sector growth over the next several years as critical, with most names depending on the US specialty performance to generate top-line growth. Overall, while the potential for a more stable pricing environment clearly bodes well for the sector, we continue to expect recovery for our coverage universe, with companies having meaningful enough new product flow over the next 12-18 months to drive growth,” the brokerage firm said in a recent note.

Emkay Global Financial Services also expects the pharma sector to bottom out in Q2-Q3FY19 and mark the beginning of a strong phase for generic companies.

“Q2FY19/Q3FY19 may well mark the cyclical bottom for large-cap Indian generic companies, at least from a US revenues perspective even while earnings bottom may not follow suit immediately. However, we expect the next 12-18 months period to be a strong growth phase for a number of generic companies given the low earnings base (flat earnings for past 2/3 years) and possible bunching of approvals as a number of regulatory issues get resolved over time. We believe that it may be time to get constructive on a few names and ride the momentum. However, we are very clear that we are in a phase of a cyclical uptrend in Indian generic stocks even as the structural challenges for the industry will persist,” the brokerage firm said in Q2FY19 results preview.

“We expect 2QFY19 to be the second consecutive quarter of YoY growth in aggregate US sales after five quarters of YoY decline. With the intensity of price erosion declining from high double-digit to high single-digit, the US business is expected to continue reporting decent growth during the quarter, despite ongoing base business erosion. Potential approvals should help negate this issue for few companies,” Motilal Oswal Securities said in results preview.