2 Top Pharma Stocks To Buy To Offer Stability To Your Portfolio

Pharma stocks are long been considered as defensives offering stability to your portfolio, without being much affected by the larger market landscape. Also, to the uninformed, for international trade in pharma, RBI is putting in place a system whereby trades will be settled in INR. So, as per the report by the brokerage firm, ICICI Direct the move is likely to facilitate trade settlement in rupees and could allow Indian pharma players to bypass certain orders that prevent the use of a global currency such as the US dollar for trade with certain countries like Russia

Nevertheless to render more stability to your portfolio, ICICI Direct based on its Q1fy23 preview on pharma companies:

View on pharma companies as put by the brokerage:

The domestic base shall weigh for pharma players, though there is recovery in US markets

The players are seen to come up with muted performance given the high Covid base, though launches has triggered recovery in the US markets. "The universe (12 coverage companies) is expected to post YoY growth of ~6% to around Rs. 43,273 crore.
Domestic formulations (select pack) are expected to remain flat YoY at Rs. 11,111 crore on the back of a significant high base in Q1FY22 due to Covid being partially offset by price hikes and pick-up in ex-Covid brands.

On the US front, we estimate single digit price erosion will persist in the oral solids base business. However, with some incremental approvals and launches- Bortezomib and Pemetrexed Injection for Aurobindo, Pregabalin Capsules for Lupin, Mesalamine ER-capsules for Sun, Pirfenidone tablets for Alembic and Pemetrexed injection for Dr Reddy's, we expect US (select pack) portfolio to get some respite and is expected to grow ~11% YoY to Rs. 11,548 crore. Rupee depreciation of 4.6% YoY vis-à-vis US$ (average basis) is also likely to provide some cushion.

Top picks from the space

The brokerage has provided for the below scrips as its top picks within the category. Also, for both of them it is anticipated that they i.e. Divi's and Biocon are likely to see 15%+ YoY growth.

There is Buy rating on the stock of Divi's with a target price of Rs. 4655 while on Biocon there is a Hold call for a target price of Rs. 380 per share.

EBITDA margins to contract YoY at around 22.2%

Improving logistical challenges and sequentially lower freight cost is likely to be offset by challenges in China leading to inflationary input (solvents, KSM, API) cost. Few notable US recalls are likely to impact margins - Aurobindo (Cyanocobalamin), Sun (Cequa and Bupropion tablets), Lupin (Losartan), Dr Reddy's (Lansoprazole) and Torrent (Pantoprazole). We expect EBITDA margins for I-direct pharma universe to decline 281 bps YoY to 22.2%.

Disclaimer

The above stock picks are as given by ICICI Direct. Investors should undertake their own due diligence before betting on any market linked security.