The Hindu Business Line : Pharma stocks dip after CLSA downgrade

IT was another day of surprise developments in the stock market with pharmaceuticals companies' shares moving down when there was overall buying interest.

This trend was seen from the fall in BSE Healthcare Index, which includes mainly pharma companies, down by 2.49 per cent when BSE Sensex gained 1.07 per cent.

All the top rung pharma companies such as Dr Reddy's Laboratories, Ranbaxy, Cipla, Sun Pharmaceuticals, Biocon, and Wockhardt were down today after foreign broking firm CLSA downgraded the Indian pharma stocks. CLSA is one of the biggest broking firm in India and caters mainly to FIIs and other institutional investors.

The firm said, "Our long held bullish view on the global generic growth story and the Indian pharma industry's role in that space is at risk. We believe that the ability of generic companies to sustain growth momentum, both revenues and profits, is at rising risk".

In today's trading, Dr Reddy's stock price was down by 4.52 per cent at Rs 754.95 on the BSE, Cipla was down by 2.64 per cent at Rs 210.45, Sun Pharmaceuticals closed at Rs 371.65, down 4.09 per cent. Other stocks to fall included Biocon (down 2.60 per cent at Rs 496.05), Wockhardt (down 5.57 per cent at Rs 248.10).

The main concern on pharmaceuticals stocks is increased number of players in generic drugs. "The rapid commoditisation of the generics market, the rising number of Indian players which are competitively positioned makes us wary about the sustainability of margins," CLSA said.

There are some other longer-term risks, which are emerging, feels the broking firm. "Indian companies are the lowest cost producers of drugs in the world. Till now, only Ranbaxy and Dr Reddy's were players in the US generic space. There are 9 other competitors for finished products from India that are emerging."

However, it said we are not writing off the India pharma theme. "We continue to believe that the sector led by Ranbaxy would deliver long term growth given the competitive advantages but growth would be much lower than expected and hence valuations need to adjust."

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