Connect with us

Company News

Slow Growth Weighs On Defensive Tag Of Pharmaceutical Stocks

Are investors finding pharma stocks a bitter pill to swallow? It certainly seems so. Stocks of pharma companies are undershooting the broader markets and the divergence has been increasing since April 2019. The Nifty Pharma index has slipped 17% this fiscal year, compared with a 2% fall in the NSE 500.

Just when pressures on generic pricing in the US market had started steadying, domestic volume growth rates have dropped once again in May. In fact, domestic volume growth slipped to 1.3% in May after a positive start to FY20 in April, when growth came in at 5.1%. “The month-on-month decline was particularly stark in anti-infectives (from 11.6% to 7.2%) and cardio (from 14.9% to 9.4%), which together constitute around 24% of the Indian pharmaceuticals market,” Emkay Securities Ltd pointed out in a note to clients. The volume growth of 5.1% in April had come after five months of negative growth.

Since these segments contribute considerably to the fortunes of the Indian pharmaceutical market, the decline in volumes is worrying. In fact, domestic arms of Indian pharma businesses are seen as providing the cushion against a fairly choppy US market lately. But that has not been coming.

Paring down of inventory may also be contributing to the domestic slowdown. “In another common refrain, companies indicated that trade channels have definitely pared inventory, with average holding down to 40 days from the pre-GST norm of 45-50 days,” said Yes Securities Ltd in a note to clients. About 25-30% of the revenues of pharmaceutical companies come from domestic businesses, while about 45-50% is from US markets.

Hence, the market sees the domestic business as crucial for the pharma sector. However, in the long run, the domestic market is expected to grow around 10-12%, according to some analysts. “Certain Indian companies have a strong valuation cushion from their India/EM positioning and more so from India, which is likely to grow 10-12% in FY20. Although the scope of price controls may widen, we expect a low probability of any major disruptions,” said a CLSA India Pvt. Ltd note to clients. Valuations, though, are down for Indian pharmaceutical companies.

Copyright © 2024 Medical Buyer

error: Content is protected !!