Bluechip pharma shares have crashed almost 50 to 100 per cent in the last few weeks, even as the Sensex has hit a new lifetime high. Let us take a look at the price destruction in select pharma stocks and whether some of them are worth buying into.
Lupin Ltd shares hit a new 52-week low in trade today. The stock has crashed from levels of Rs 1,750 seen in July last year to Rs 1,236 today. The company has reported poor quarterly numbers, wherein profits at the company plunged. This is among the top three pharma companies in India and is a major player. Like peers it has been hit by US FDA regulatory concerns and also a sharp gains in the rupee. One is not sure where the stock would go, but, most eagerly awaited would be its quarterly numbers to June. In terms of p/e the stock is not very expensive at around 15 times one year forward p/e.
This is among the top 5 pharma companies in India, and like Lupin has a significant global presence. The stock has dropped to a 52-week low today of Rs 539 and in the past has hit a 52-week high of near Rs 900 seen in October 2016. That is a dramatic drop in just eight months and has eroded wealth of investors. However, Motilal Oswal recently put a buy call on the stock in its recent research report. In terms of valuations this is probably a stock that is really going cheap with the number of ANDA filings and a very well diversified portfolio. However, mutual funds seem to have been dumping pharma stocks of late. SEBI recently disposed of a case relating to violation of insider trading norms against Sumanth Kumar Reddy Mettu, promoter of Aurobindo Pharma.
Sun Pharma is India's largest pharma company. The stock has dropped to a new 52-week low this week and worries over the US FDA warnings continue to haunt pharma companies in India. Sun Pharma shares have dropped from levels of Rs 854 to the current levels of Rs 600. A strong rupee is likely to impact earnings of these companies, with the quarter ending March 31, 2017 and the subsequent ones being really difficult. Speedy approval for new ANDAs and quick resolution for US FDA woes would be the key to performance of Sun Pharma.
In terms of price destruction, this has been one of the worst performing stocks. The stock has dropped from levels of Rs 1,381 to Rs 581. Again, US FDA woes were one of the big reasons for the sharp drop in the price of the stock. Earlier this year the company was issued an import alert, which means the company could not export products to the US FDA from the plan and the regulator had exempted several products manufactured at the unit II in Visakhapatnam, Divis Laboratories had stated. Unless, US FDA worries are resolved, this may remain a risky bet.
Shares in Glenmark Pharma have also fallen dramatically after a poor set of results. The stock touched a 52-week low of Rs 649. The result for the sharp fall is a weak set of numbers. A poor quarterly performance for the period ending March 31, 2017 was largely due to lower-than-expected gZetia sales and sharp price erosion in the US base business of the company. The management has guided for lower sales in the coming year, which further pushed the stock lower. This is one stock that we cannot be bullish on also largely on account of the large size debt on the company's books.
Other pharma stocks
Various other pharma stocks like Dr Reddys and Cipla too have lost heavy ground. While Cipla is nowhere near its 52-week low, Dr Reddy's is very close to the same. Again, Dr Reddy's maybe a little expensive at the current levels.
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