In last several years, we have seen Nifty Pharma index outperforming Nifty by a significant quantum of 45% in 2020. And now as prospects for the sector continue to be positive with production of complex products as well as stable pricing scenario, but what remains as key concerns as per Jefferies is the emergence and prominence of e-pharmacies in the landscape as well as the increasing pricing role in driving the sector in the Indian market.
Pharma Picks by Jefferies from large-cap space include
1. Dr. Reddy's
Jefferies is of the view that counters picked by it have witnessed lower price erosion over the last several quarters. And this is well below the average seen in between FY2017-18. Also, the number of ANDA filings has continuously edged lower in the last 4 years. This suggests that the competition has now come down with USFDA backlog levels back to 2012 levels. And growth in the companies picked by the brokerage shall be driven by new product launches including gRevlimid, gNuvaring, gVascepa, gAdvair.
Jefferies roll over their estimates to FY23 for all companies. Jefferies have added Revlimid to Cipla FY23 estimates and increased margin and revenue estimates for Divi's due to improving visibility. Jefferies expects Dr. Reddy's/Cipla to report FY21-23 EPS CAGR of 20%/19% led by US constant currency growth of 10%/8%, ex-Revlimid. Revlimid is expected to add Rs 29/4 EPS from FY23 to Dr. Reddy's/ Cipla and will improve through FY26
Axis Capital on the other hand has picked Cadila and Dr. Reddy's as its pick from the large-cap pharma space:
In the views of Prakash Agarwal of Axis Capital, the sector did extremely well amid the pandemic both in terms of cost management as well as on sales front. He further says that now cost shall increase given the inputs and as tailwinds are set to normalize, there shall be normalization witnessed on the valuation front too. And now stock picks from the space need to be judiciously done basis the appropriate valuations as well as considering companies' product pipeline or brands that are functional in India.
Axis Capital Mid-cap Pharma picks are:
Axis Capital has selected Divi's and in the domestic space, the choice has been Eris Life.
Now as per the views of expert while raw material cost begun to see a surge and there shall be no export incentives at least for one quarter. So, given the momentum and liquidity gush, what holds importance while considering investment in pharma pick is that such companies should not be confronting any margin hiccups or other performance related issues. And definitely you can go in for pharma scrips with visible strong earnings.