The pharma sector is having the worst of times, with US FDA worries, pricing pressures in the US and a firm rupee. However, these worries have also led to stocks from the sector falling and many stocks are now close to 52-week lows, even as the Nifty is at a new lifetime high.
Here is a good midcap stock idea, that is from the pharma space and has the potential to rally. To get decent returns you hold the stock for a minimum period of 3 years at the very least.
This stock is not very far from its 52-week low of Rs 567. The shares have slumped from levels of Rs 972, which is a price erosion of more than 40 per cent from peak levels. This is one reason which makes the stock attractive.
For the quarter ending Sept 30, 2017, the company had a weak performance, as was the case with almost all of the pharma companies in India. Now going ahead the company is guiding for a 5-6 per cent growth in revenues, which is not bad under the present scenario.
The key to growth would remain its product pipeline. During the quarter Glenmark Pharma launched as many as seven products in the United Kingdom, Germany, Netherlands, Poland, Sweden and Finland.
Slightly longer term outlook remains bright
From a slightly longer term outlook the shares of Glenmark remain very good for investment. The product pipeline continues to look promising, especially the launch of gWelchol (CVS).
The company also has a very good market share in the domestic market including derma, cardiac, respiratory and anti diabetic. During the quarter, the company was also granted final approval by the MHRA (Medicines and Healthcare product ) for Maloff Protect, anti-malarial medication, as a pharmacy license in the United Kingdom.
Cheap on valuations
Glenmark Pharma is amongst the cheapest pharma stocks that is presently available. The company reported an EPS of Rs 7.6 for the second quarter of 2017-18. We believe that for the full year 2017-18, the company could do an EPS of Rs 38.
However, with a series of launches and the new pipeline fructifying, the company could report an EPS of Rs 48 by 2018-19. If you discount the stock with a p/e of around 20 times, the stock should trade at around 960 in the next few years. However, one would need to be extremely patient to make gains.
The key risks for the stock of Glenmark would be the same old pricing pressure problems in the US for next few quarters. We believe that this should go away sometime in the next one year or so.
The strength in the rupee is another concern as the company derives much of its revenues from exports. Delay in new launches could be another area of concern, however, we do not anticipate the same to be a major problem for the company. All in all, if you are likely to hold the stock for another two years or so, you could probably benefit from higher price movement for the same.
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