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    80% return in 95 sessions! Analysts say this Dark Horse has miles to run


    Analysts are largely retaining their bullish view on the sector, but some have advised investors to stay stock-specific after the huge rally.

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    Most of the brokerages hold ‘buy’ ratings on the pharma names.

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    The pharma sector emerged the dark horse in the ruins of the Covid-19 destruction on Dalal Street, and the BSE Healthcare index rallied some 80 per cent in 95 sessions to hit an all-time high of 19,720 on August 10 rising from its 52-week low of 10,948 hit on March 23.

    Increased demand for pharma goods amid the health emergency, better-than-expected June quarter earnings and the government’s push to reduce the country’s dependency on imports for active pharmaceutical ingredient (API) played their part in driving the rally.

    Some 117 stocks from the sector delivered an average return of 126 per cent during this period, with Bharat Immunological & Biologicals gaining the most at 490 per cent.

    It was followed by IOL Chemicals (up 410 per cent), Aarti Drugs (up 402 per cent), Marksans Pharma (up 364 per cent) and Venus Remedies (up 312 per cent). Other stocks on the list all delivered positive returns.

    “Prior to Covid, pharma was under-owned. It was a sector which did nothing for five years, and everyone was underweight on these stocks. June quarter numbers showed a strategic in the sector and that proved to be the trigger,” says Atul Suri, Chief Executive Officer, Marathon Trends PMS.

    He says this trend can last three to five years.

    At least 20 pharma stocks including Aarti Drugs, Divi’s Labs, Alembic Pharma, Aurobindo Pharma and Torrent Pharmaceutical scaled new highs in August.

    Analysts are largely retaining their bullish view on the sector, but some have advised investors to stay stock-specific after the huge rally.

    “Pharma stocks have been rallying due to better-than-expected Q1FY21 numbers by most companies. The performance was driven by strong sales growth in Europe and US markets, while the de-growth in domestic market was less than expected,” said Yash Gupta, Equity Research Associate at Angel Broking.

    Among the big performers of June quarter, Laurus Labs recently posted 1,038 per cent year-on-year (YoY) growth in profit. Shilpa Medicare, Strides Pharma, Aarti Drugs, Anuh Pharma, Neuland Laboratories, Alkem Labs and Marksans Pharma posted 100-500 per cent expansion in bottom line.

    Most of the brokerages hold ‘buy’ ratings on the pharma names. Motilal Oswal Financial Services is bullish on Laurus Labs with a price target of Rs 1,215. Geojit Financial Services has ‘accumulate’ rating on Strides with a 12-month target price of Rs 621.

    Among others, Granules India, Divi’s Labs, Solara Active Pharma, Abbott India, IOL Chemicals and Pharma, Cadila Healthcare, Alembic, Sanofi and Ajanta Pharma all posted somewhere 25-100 per cent profit growth for June quarter.

    Gupta of Angel Broking said the ongoing growth momentum is likely to be maintained in the near term. He, however, advised investors to remain selective. Ipca Laboratories, Alembic Pharma and Dr Reddy were among his top picks.

    The government last month launched a Rs 6,940 crore production-linked incentive scheme to boost local bulk drug manufacturing in an effort to reduce dependence on imports for APIs.

    A study by PwC India around 50 per cent of the critical APIs are being imported to the country and almost all imports are from China.

    Unichem Laboratories in its annual report said India needs a healthy and financially strong ecosystem to boost manufacturing of APIs to become self-reliant in the years ahead.

    “We have barely scratched the surface in APIs. We are more or less dependent on imports in terms of active ingredients and other intermediaries. Till now, the story was the export of generics formulations to other countries. With India’s goal of becoming self-reliant on APIs, a lot of opportunities are going to open up in this space,” says Narendra Solanki, Head of Rquity Research (fundamental) at Anand Rathi Shares & Stock Brokers.

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    5 Comments on this Story

    Leon Fernandes45 days ago
    stock price due to COVID-19. real prices will reflect next year.
    Praker 45 days ago
    current run because of speculation and no economic base.. may not last long..
    Jagdish Kumar Bhargava45 days ago
    Glenmark pharma is also a promising stock but the analysts somehow do not consider it for investment.
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