Pharma Stocks Outlook
for the week – 03 to 07.10.2016
May rebound next
week; Aurobino Pharma top pick
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Despite challenges over the short term on both domestic and
international fronts, stocks of most
pharmaceutical companies are likely to rebound next week as
investors continue to be bullish over
the sector's long-term prospects. Favourable valuation of
large-caps following a near 10% decline in
the Nifty Pharma index in the last one year on regulatory
issues is another reason aiding investor
sentiment. Aurobindo Pharma is the preferred pick of most
dealers due to expectation of strong
earnings from the company, which has one of the largest
pipeline of generic drugs that are awaiting
US Food and Drug Administration's approval. For the next
week, the Hyderabad-based company's
stock is expected to rise further. It would be a lifetime
high for a stock that was hovering around just
100 rupees three years ago. The stock trades at a 30%
discount to the pharmaceutical sector. We
expect the current 30% discount to narrow as the company
delivers strong growth and reducing
debt.
The largest company in the sector Sun Pharmaceutical
Industries is expected to rebound from this
week's losses. Resolution of its regulatory issues
surrounding its plant at Halol is a key trigger for the
stock. The US Food and Drug Administration had issued a
warning letter to the plant for noncompliance with good manufacturing practices. The analyst remains
uncertain about when most
pharmaceutical companies' regulatory issues will be
resolved. Yesterday, Cipla declined 4% after
company said the US Food and Drug Administration issued a
Form 483 with four observations related to deviation from good manufacturing practices across three
units at its Goa facility. Cipla was the worst hit in the sector this week, and is likely to correct
further next week.
Next week, the broad market will also be in focus as market
participants focus next week on account
of Reserve Bank of India's monetary policy. Investors will
also monitor government officials and
ministers' comments given the on going geopolitical tensions
between India and Pakistan.
