The Hindu Business Line : Second-rung pharma stocks outdo index since May

Mumbai June 12 Second-rung pharmaceutical stocks have outperformed the healthcare index by over four per cent due to increased investor interest in companies engaging in contract research and manufacturing services (CRAMs).

The BSE Healthcare Index has risen 0.61 per cent since May 1, while most mid-sized pharmaceutical companies have gained over four per cent in the same period.

Some stocks have been moving up for specific reasons, like Glenmark Pharmaceuticals due to the recent stock split, Shasun Chemicals due to acquisition of UK-based Rhodia Group's development and custom manufacturing services and Sun Pharma due to proposed acquisition of Taro Pharmaceutical Industries.

But most of the others have been moving up due to benefits they will get from CRAMS, according to analysts.

"Mostly companies in the contract manufacturing space have seen a lot of activity, which have boosted the performance of these stocks in the market," said Ms Sarabjit Kour Nangra, pharma analyst with Angel Broking.

CRAMS pertains to outsourcing services and products from low-cost providers.

Players like Dishman Pharma, Divis Labs and Shasun Chemicals have limited front-end presence in marketing finished products and their focus is on low-cost manufacturing.

Multinational clients of these companies include Solvay, AstraZeneca, Merck, GlaxoSmithKline and Eli Lilly.

"Indian pharmaceutical companies that are partnering with global companies stand to benefit. Investors are realising that there is a lot of opportunity for these companies to grow," said an analyst with a broking house.

"We have always been bullish on CRAMs companies like Dishman Pharma and Nicholas," he added.

The stock of Nicholas Piraramal India Ltd has moved up 4.09 per cent month-on-month and Dishman Pharma is up nearly 30 per cent for the month, while Divi's Laboratories, which has been in the contract manufacturing space for quite a while, rose over 35 per cent for the month.

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