Sun Pharma, Torrent, DRL & Lupin CLSA’s top pharma picks
With rapid price deterioration in the simple generics industry in the US, Indian pharma companies are in a challenging situation. But at the same time, the importance of India and emerging markets should increase for the drug makers due to the strong growth outlook, brokerage CLSA has said in a note.
According to the brokerage, large-cap drugmakers are better positioned to ride the next wave of growth in the US owing to their superior research and development, better execution, and stronger balance sheets. CLSA has cited Sun Pharmaceutical Industries, Lupin, Dr Reddy’s and Torrent Pharmaceuticals as its best ideas.
Sun Pharma | CMP: Rs 692.30
The brokerage firm has maintained ‘buy’ rating on Sun Pharma with a target price of Rs 860 per share as the drug maker is making steady progress in its differentiated pipeline, particularly in the derma and opthal space. CLSA expects it to add more products to its pipeline in the current financial year. “While there is pressure in the Taro business and the number of US launches has been impacted by the Halol warning letter, we believe that valuations, which are 1sd (standard deviation) below the fi ve-year average, are attractive,” noted CLSA.
Lupin | CMP: Rs 1,433.35
The brokerage has upgraded shares of Lupin to ‘buy’ from ‘outperform’ and raised target price by 6.7% to Rs 1,760 citing strong drug approval cycle in the US. “It's differentiated pipeline in respiratory and biosimilars is making gradual progress, which will support the longer-term outlook,” said CLSA. The brokerage forecasts Lupin to post mid-teen earnings growth despite a high concentration on some products.
Torrent Pharma | CMP: Rs 1,456.90
Estimating the company’s earnings to grow at 24% on a compounded basis between FY17 and FY19, CLSA said the company’s strong positoning in branded generic markets such as India and Brazil are likely to help to sustain premium valuations. “We expect India and Brazil to contribute 63% of the incremental growth over this period. This provides strong earnings growth visibility for the company,” said CLSA in the note. The brokerage has raised target price on Torrent Pharma to Rs 1,810 from Rs 1,640 while retaining a ‘buy’ rating.
Dr Reddy’s | CMP: Rs 2,641.40
Maintaining ‘buy’ and target price of Rs 3,620, CLSA said a meaningful revival in drug approvals in the second half of the current financial year will be a key factor for recovery in US business growth. Moreover, favourable outcomes on litigation related to Nuvaring and Suboxone sublingual film will provide further visibility on US sales growth in the next two years, added CLSA. “A fast approval process and successful US FDA resolution for the Srikakulam plant could drive a substantial stock re-rating,” noted CLSA.
According to the brokerage, large-cap drugmakers are better positioned to ride the next wave of growth in the US owing to their superior research and development, better execution, and stronger balance sheets. CLSA has cited Sun Pharmaceutical Industries, Lupin, Dr Reddy’s and Torrent Pharmaceuticals as its best ideas.
Sun Pharma | CMP: Rs 692.30
The brokerage firm has maintained ‘buy’ rating on Sun Pharma with a target price of Rs 860 per share as the drug maker is making steady progress in its differentiated pipeline, particularly in the derma and opthal space. CLSA expects it to add more products to its pipeline in the current financial year. “While there is pressure in the Taro business and the number of US launches has been impacted by the Halol warning letter, we believe that valuations, which are 1sd (standard deviation) below the fi ve-year average, are attractive,” noted CLSA.
Lupin | CMP: Rs 1,433.35
The brokerage has upgraded shares of Lupin to ‘buy’ from ‘outperform’ and raised target price by 6.7% to Rs 1,760 citing strong drug approval cycle in the US. “It's differentiated pipeline in respiratory and biosimilars is making gradual progress, which will support the longer-term outlook,” said CLSA. The brokerage forecasts Lupin to post mid-teen earnings growth despite a high concentration on some products.
Torrent Pharma | CMP: Rs 1,456.90
Estimating the company’s earnings to grow at 24% on a compounded basis between FY17 and FY19, CLSA said the company’s strong positoning in branded generic markets such as India and Brazil are likely to help to sustain premium valuations. “We expect India and Brazil to contribute 63% of the incremental growth over this period. This provides strong earnings growth visibility for the company,” said CLSA in the note. The brokerage has raised target price on Torrent Pharma to Rs 1,810 from Rs 1,640 while retaining a ‘buy’ rating.
Dr Reddy’s | CMP: Rs 2,641.40
Maintaining ‘buy’ and target price of Rs 3,620, CLSA said a meaningful revival in drug approvals in the second half of the current financial year will be a key factor for recovery in US business growth. Moreover, favourable outcomes on litigation related to Nuvaring and Suboxone sublingual film will provide further visibility on US sales growth in the next two years, added CLSA. “A fast approval process and successful US FDA resolution for the Srikakulam plant could drive a substantial stock re-rating,” noted CLSA.
