HDFC Securities positive on domestic midcap pharma stocks
HDFC Securities is positive on domestic pharma companies, said Amey Chalke, who is a pharma analyst at the company.
“We largely like domestic-focused companies like Alkem Labs and we have also written a detailed note on Abbott India, which we believe is a long-term story if you have to play on India," Chalke said in an interview with CNBC-TV18.
Talking about Sun Pharma, he said, “We believe the valuations are attractive and from hereon we should see recovery in the stock on the back of US businesses which will do well and also domestic business which did not do well last year because of some inventory adjustment and restructuring within subsidiaries.”
On Dr Reddy's Lab, Chalke said, “We are expecting Rs 3,300 kind of a target price for one year. Their regulatory slate is largely clean except Srikakulam plant which is an active pharmaceutical ingredient (API) plant. We are also expecting good improvement in their US-based business driven by 30 launches in FY20.”
He expects a soft Q1 for Glenmark on account of restructuring.
The overall pharmaceutical sector in Q1 is in recovery mode. The street is expecting sales to grow by around 15 percent this quarter which will make it the third consecutive quarter of double-digit mid-teens growth for the sector.
Growth is expected to be led by the US base business improving with the street anticipating an up to 20 percent rise in sales in the US domestic growth market. Growth is likely to be slower due to a high base in terms of the domestic market which was around 28 percent in Q1 of FY19.
Operational improvement will be watched closely this quarter due to higher sales and cost containment measures which were undertaken by the companies such as reducing research and development expenditure.
Commentary is going to be extremely crucial this quarter on account of regulatory issues faced by Cadila, Aurobindo, Lupin and Torrent to name a few.
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