2 Bluechip Pharma Stocks That Dropped 30 To 40% From 52-week Highs, Should You Buy?

Markets have plunged rather sharply from 52-week highs, following valuation concerns and also worries over the spread of the omicron virus. "Overall, we expect market volatility to remain high until there is clarity on the impact of the new virus. Also, FII selling has been pretty strong adding to the overall market weakness," says Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Aurobindo Pharma: Should you buy after the steep fall?

Current market price	52-week high	Fall%
660	1063	38.00%

The stock of Aurobindo Pharma has fallen almost 38% from 52-week highs. Many foreign brokerages have remained bullish on the stock. Last month Credit Suisse had an "outperform" call on the stock of Aurobindo but did cut the target to Rs 1,110 from Rs 1,130 a share. It has cut FY22/FY23/FY24 EPS estimates by 5 percent/3 percent/5 percent, respectively.

Goldman Sachs too has a "buy" on the stock but has also cut target to Rs 860 from Rs 930 a share. It has cut FY22-24 EPS estimates by up to 7 percent to factor in lower topline and slower margin development.

A fully integrated pharma company, Aurobindo Pharma features among the top 2 pharma companies in India in terms of consolidated revenues.

Lupin Ltd

Current market price	52-week high	Fall%
857.95	1257	-32.36%

Lupin too is among India's top pharma companies with a solid export presence. The stock has plunged nearly 33% from 52-week highs as investors have now moved money from the defensive pharma stocks to economic centric stocks.

Sharekhan sees an uptick on the stock and has set a price target of Rs 1210, which is near the 52-week high price of the company.

Earlier this month the company entered into an exclusive distribution and marketing agreement with Biomm SA in Brazil. Under the terms of agreement, Biomm will distribute and market biosimilar Pegfilgrastim in Brazil. While the company may continue to witness margin pressures and performance on profitability the stock price more than factors that. Shares of Lupin last closed at Rs 1257 on the BSE.

Defensive stocks could be a good play going forward

We believe that should the spread of the omicron virus be severe, investors might start moving money from risky economy related stocks to defensives like pharma. This could boost the share prices of some of the players like Aurobindo Pharma and Lupin. In terms of buying, we would prefer buying the stock of Aurobindo to Lupin.

Investors will need to have patience in pharma stocks to make money. Also, a 2-3 year holding period could benefit, given the large number of ANDA filings that some companies like Aurobindo Pharma have. All in all, given the sharp uptick in some stocks like banks, it would be a good idea to make a tactical shift to pharma, given the sharp erosion in share prices of some of these companies.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies and the author, are not liable for any losses caused as a result of decisions based on the article.