What is happening to pharma stocks?

The crash in the shares of pharma companies has largely come on the back of poor quarterly numbers. Take for example, Lupin Ltd. The company's net profits for the quarter plunged 59.40 per cent year-on-year (YoY) to Rs 358.06 crore for the June quarter. This was way lower than what analysts were expecting. The results of most pharma companies have also been very poor. Biocon, another respected name in the pharma industry saw consolidated net profit fall 51.2 per cent year-on-year to Rs 81.3 crore against Rs 167 crore. Again, a weakish set of results that has pushed share prices lower of Biocon. On Friday, the stock crashed as much as 5 per cent in trade.

A number of worries for the pharma industry

It is going to be challenging times for the pharma industry. Clearly, price erosion in products is going to dampen margins in the US and that is already reflected in the quarterly numbers. To make matters worse the rupee is appreciating dramatically against the dollar and has now hit a 2-year high of Rs 63.70. This could further squeeze margins in the coming quarters. The worries over US FDA import alerts continues to haunt the industry and this could further impact sentiments. There is little doubt that it is going to be tough for the export oriented pharma industry in the days to come.

Stock prices still look unattractive

Stock prices of pharma companies may still be overpriced unless there is a sharp recovery. Take the case of Lupin. The company reported an EPS of Rs 7.81 for the quarter ending June 30, 2017. If the same pace and performance remain, it could report an EPS of Rs 32 for 2017-18. This means the stock is still trading at a p/e of about 30 times. So, to trade higher there has to be a remarkable turnaround in performance. It is highly likely that you could get stock prices from the pharma space even lower than they are trading now. So, one needs to be patient and wait for some more time to pick stocks at lower rates.

Disclaimer

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