5 Midcap Pharma Stocks To Buy Ahead Of Quarterly Results

Sharekhan has come-up with a preview report on the pharma sector. The firm has a few stocks from the sector where it has a buy call. Here are 5 stocks that the company has a buy call from the sector.

Pharma stocks to buy

Sharekhan says to buy the stocks of Laurus Labs, Sanofi India, Abbott India, Caplin Point Laboratories, Alembic Pharmaceuticals. Pharmaceutical companies in the Sharekhan universe are expected to report moderate topline growth for Q1FY2023 as US sales are expected to be under stress due to heightened competitive pressures and lack of new products/plant approvals. "In addition, recent plant inspections have ended in observations being issued to companies, which point at apparent regulatory concerns. Moreover, although India business is expected to be staging healthy growth, high base in the corresponding quarter of the previous year and reduced Covid opportunities are likely to moderate growth of India business of pharmaceutical companies. Further, high operating margin base in Q1FY2022, increased raw-material costs, and high logistics costs are likely to exert margin pressure on pharma companies in Q1FY2023, leading to a likely decline of ~8.5% y-o-y in earnings," the brokerage has said.

Revenue growth to be 5.9%, says Sharekhan

Revenue growth of pharmaceutical companies under Sharekhan's universe is expected to be 5.9% y-o-y for Q1FY2023. Growth of formulations companies with a sizeable presence in US markets is expected to be impacted by sustained pricing pressures, which are likely to be around low double digits and lack of new products/plant approvals. In addition to these, recent plant inspections by the USFDA have ended up with form 483 being issued to few players with observations, which point at apparent regulatory concerns. Players such as Aurobindo, Zydus Lifesciences, and Lupin are the expected to be impacted by price pressures in the US markets, while companies such as IPCA Labs and Torrent are expected to stage healthy growth in India business. Dr. Reddy's is likely to stage healthy growth in its domestic business due to its acquired portfolio. API players such as Divis Laboratories is expected to stage strong 18% y-o-y topline growth benefiting from a strong demand environment due to supply chain replacement opportunities from China.

Long-term growth prospects stay brighter

Indian pharmaceutical companies are better placed to harness opportunities as they are competitive globally and hold a sizeable market share in most markets. Moreover, other factors such as 1) long-term opportunities in the US with increasing preference for specialty/complex generics (including biosimilars) and injectables, 2) expected healthy growth in IPM, which is expected to stage close to double-digit growth in FY2023 as well, and 3) emerging opportunities in the API space would be key growth drivers over the medium to long term; while in the near term, pricing pressures in the US, elevated cost pressures and geopolitical stress could act as headwinds, though transient in nature. Collectively, this points towards a strong growth potential over the long term for Indian pharma companies.