Elara Securities outlines key trends and top picks in the pharma sector

Bino Pathiparampil, Head of Research at Elara Securities finds it challenging to pick affordable or value stocks in the pharmaceutical sector in the current market.

"While current analyst estimates suggest stretched valuations, if the cycle plays out as I anticipate, we may see significant earning upgrades, providing further upside to stock prices. Otherwise, it's difficult to find cheap value in this market," Pathiparampil added.

He prefers companies that have exposure to the US generics market, anticipating improvements moving forward. Pathiparampil said there has been a significant turnaround in the business across the board, especially among larger companies with a robust product basket and approvals in the US.

He said the price erosion in the US generics market has decreased, reaching very low single digits or almost close to zero. This favorable scenario is particularly beneficial for companies with a strong presence and filings in the US.

Among the companies expected to see significant earnings upgrades are Zydus Lifescience, Sun Pharmaceuticals, Lupin, Gland Pharma, and Aurobindo Pharma, all of which have substantial contributions from the US market.

"Alembic Pharma is one of the players that has set up substantial facilities and invested significantly for a ramp-up in the US business. The environment in the US generics market looks perfectly set to favor such companies, and Alembic is going to be one of the bets," Pathiparampil concluded.