Brokerage house, Sharekhan is positive and has further boosted its confidence in the mid-cap pharma space. Based on the analysis of different business models and their vulnerability to changing macro-economic factors, the brokerage house has picked up Ipca Laboratories, Glenmark Glenmark Pharmaceuticals and Torrent Pharmaceuticals as top picks. The brokerage house has provided the following rationale:
We continue to like the mid-cap pharma space on account of its favourable valuations and earnings outlook. In our view, after a strong growth of 15% over the last five years, growth in domestic formulations market is likely to remain sturdy even on a higher base. We also continue to see significant opportunities in US generics on the back of new product launches. In the medium term, companies with strong exposure to the domestic market may outplay the others.
We do not see major debt/equity issues, implying there`s scope for incremental improvement in the return ratios which would justify valuations for the sector.
Earnings Estimates:
The reported quarterly earnings of the nine companies in Sharekhan`s pharma universe grew by 2 times y-o-y, largely on a lower base. During the corresponding period last year pharmaceutical companies had grappled with forex losses, subdued domestic market and a lacklustre US business. On an adjusted basis, the Q1FY11 earnings of the universe grew by 41.90% y-o-y. The growth showed a downside of 10% on a sequential basis.
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