• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Nath Balakrishnan

INVESTORS who shopped for pharma stocks early this year are sitting on a veritable bounty of returns. As the Table shows, an investment of Rs 100 in the set of 25 stocks considered for this analysis would have returned about 80 per cent over a nine-month time frame.

If the current market rally sustains, the possibility of a further upmove in pharma stocks from present levels cannot be ruled out. However, investors who hold deep "in-the-money" positions should look at taking advantage of the strength in the market to lock into concrete profits, at least on part of their holdings.

Bulk drug stocks: They have been at the forefront of the pharma rally, led primarily by Divi's Labs, Matrix Labs and Shasun Chemicals. Those who had invested in Divi's and Matrix Labs early on in the year would have hit pay dirt as both these stocks have posted returns in excess of 300 per cent.

The investment strategy for these stocks would be to book profits partially at the current levels. Investors should also look to liquidate their holdings in these stocks on further evidence of strength. Re-entry can be considered at lower levels.

MNC pharma stocks: Of the set of MNC pharma stocks considered for the purpose of this analysis, Business Line has a buy recommendation outstanding on three stocks at various price levels: GlaxoSmithKline, Aventis Pharma and Pfizer.

The topline growth of Glaxo and Aventis for the most-recent quarter has been in line with overall trends in the domestic pharma market.

However, a sharp focus on key brands coupled with cost-cutting efforts has seen the companies posting healthy earnings growth. Their prospects look encouraging, going forward. Investment action: Remain invested.

Frontline Indian stocks: Major Indian players such as Dr Reddy's and Ranbaxy continue to focus their efforts on prising open regulated markets that offer a passport to high returns.

Ranbaxy has secured approvals to launch a clutch of generics in the US market, though the launch of a generic version of Ceftin (on which Ranbaxy has had an extended run since March 2002) by competitors in end July might depress their revenues from the US market.

For Dr Reddy's and Cipla, the key triggers would be the launch of Amlodipine (a version of Pfizer's blockbuster anti-hypertensive Norvasc) and the export of CFC-free inhalers to the European market respectively. Investment action: Hold

Small-cap stocks: The current rally has also seen a number of small-cap stocks such as Elder Pharma, Neuland Labs and Ajanta Pharma, ride the bull run to post whopping gains. Investors who have these stocks and a slew of relatively lesser known companies in their portfolio should look at profit-booking.

The road ahead

Frontline companies — both Indian and MNC — will continue to remain superior plays among pharma stocks.

Domestic majors have the expertise to launch products in regulated markets and reap the consequent rewards;

MNC affiliates will continue to receive strong parental support in terms of access to their parent's product pipeline. Better patent protection could be just what the doctor ordered for them;

Pure bulk drug plays will continue to be preferred, though smaller companies in this area are likely to be acquired as part of the inevitable consolidation exercise.

The ones to watch

In the wake of the opportunities in the sector over the next three to five years, the companies to watch would be Dr Reddy's, Ranbaxy, Cipla, Sun Pharma, GlaxoSmithKline, Aventis, Divi's Labs, Shasun Chemicals and Aurobindo Pharma.

However, not all of them are potential buys now as prices have run up sharply to reflect likely benefits. Track these closely for potential investment later.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Obstacles to good financial reporting

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line