Can Indian pharma sector lead the bull run from hereon?

Moneycontrol Bureau

Low-on-volatility, steady-on-returns, Indian pharma is fast emerging as the sector that could lead the next leg of the bull run. The S&P Healthcare index is up nearly 32 percent this year, compared to 25 percent rally on the stock exchanges benchmark 30-share index Sensex. (Get stats here )

According to a PwC report , the Indian healthcare market has enormous potential, and pharmaceutical and PLS companies are ramping up their investments in the country accordingly. India has an established domestic PLS industry, and demographic and economic trends suggest that India is among the countries most poised for growth in the industry throughout the next decade and beyond.

With many drugs going off patent in the US, Indian pharma companies would continue to experience strong growth in American market, credit rating agency ICRA has said.

Indian pharma companies would continue to experience strong growth in the US over the medium-term. This would be driven by the sizable generic opportunity (drugs with brand value of USD 25-30 billion are expected to face generic competition) over the next 2-3 years, the investment information and credit rating agency said in a statement.

The other factor that would drive growth will be "strong product pipeline of pending ANDAs with high increasing proportion of complex generics that compares favourably with generic majors such as Teva, Mylan and Actavis", it added.

Though in the domestic market, growth momentum during the year has been moderate.

"This was primarily attributable to the implementation of the new drug pricing policy, which resulted in price cuts on a wide range of drugs and subsequently led to supply chain disruptions due to disagreement over trade margins between industry and trade partners," ICRA said.

While the US remains key driver for India's pharma sector, emerging markets provide a steady and sustainable source of growth, it added.

"Acquisitions appear to be the key route to emerging markets for Indian players. We expect companies to remain fairly active in the M&A space and look for in-organic route to fill gaps in their portfolio, the rating agency said.

Icra expects trend of significant increase in the R&D budgets to continue as most of the leading Indian companies are in the midst of expanding presence in complex therapy segments such as injectables, inhalers, dermatology, controlled-release substances and even bio-similars.

According to rating agency Moody's, the global pharmaceutical industry will continue to undergo a pace of rapid consolidation to drive shareholder value; particularly in the case of companies seeking new growth platforms, against the backdrop of patent expirations.

Moody's, which only has Ranbaxy as part of its rating profile, says as consolidations continue, particularly among generic drug players, Indian companies will increasingly look to become involved in global M&A activity.

The rating firm is of the view that some firms including Sun and Cipla Limited have begun to make sizeable acquisitions. Other Indian firms have been the targets of acquisitions; especially those run by families that are ready to sell their businesses.

(With inputs from agencies)

Sun Pharma stock price

On August 25, 2014, Sun Pharmaceutical Industries closed at Rs 853.35, down Rs 3.45, or 0.4 percent. The 52-week high of the share was Rs 869.90 and the 52-week low was Rs 475.60.

The company's trailing 12-month (TTM) EPS was at Rs 1.46 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 584.49. The latest book value of the company is Rs 41.64 per share. At current value, the price-to-book value of the company is 20.49.