The BSE Healthcare (BSEHC) index comprising of 25 leading pharmaceutical companies did not make any significant upward movement for the first time during the last 11 months of the calendar year. In fact, scrips of major companies like Ranbaxy, Dr Reddy's, Cipla, Lupin, Zydus Cadila and Glenmark have registered a decline during the 11 months period.

The BSE Healthcare index improved by just 0.8 per cent during the January-November 2007 as against a 40 per cent growth achieved by the BSE Sensitive Index of 30 major corporate during the same period.

The poor performance of the pharmaceutical sector at the country's premier stock exchange is on account of following reasons : Steady appreciation of rupee against US Dollar, rising R&D costs, high cost of approval process and marketing in regulated markets, stiff overseas competition, lower returns from R&D investments and burden of acquisitions.

Despite better growth rates in overall sales, profitability, exports, approvals and launching of product as well as filing of ANDAs and DMFs in highly regulated markets, the Indian pharma shares were unattractive to small investors, foreign financial institutions, mutual funds and other investment bodies during the January-November 2007. Though the pharma companies paid handsome returns to investors through higher dividend and splitting of share face value, they lost investors' support. The Sensex gone through several volatile movements with ups and downs in market capitalisation, but the overall sentiment was very strong for several other sectors and investors shown confidence.

The BSEHC reached at its peak level at 3991.40 points on January 18, 2007, but could not sustain the level and touched to its 52-weeks lowest level at 3306.09 on March 7, 2007. However, Sensex touched to its yearly high at 20,238 on October 30 and lowest at 12,316 on March 16, 2007. The market capitalisation of 25 pharma companies improved only by 3 per cent to Rs 1,39,895 crore as at the end of November 2007 from Rs 1,35,764 crore as at the end of the year 2006.

The Pharma analysts said that the steady rupee appreciation during last few months impacted the sentiment as it is likely to put pressure on working of highly export oriented pharma entities. Further, stringent approval norms in regulated markets and Indian government pricing policy also affecting price movements of pharma scrips.

The performance during the first half of 2007-08 and for the full fiscal year ended March 2007 was quite good. The leading 50 companies recorded smart growth of 27 per cent in net profit during the first half ended September 2007 and 22 per cent in the net sales. The export earnings during 2006-07 went up by 36.3 per cent to Rs 15,585 crore by 25 companies with net sales of Rs 31,927 crore. Thus, exports worked out to almost 49 per cent of total net sales. The R&D spending of 20 companies has increased by 7.3 per cent to Rs 2016 crore during 2006-07. The R&D spending worked out to 8-9 per cent of sales. This shows that the pharmaceutical segment is moving ahead positively to tap future opportunities, but this performance is not reflected in the share price movements during January-November 2007.

Out of 25 pharma companies, the share price of 15 companies declined during January-November 2007 and 10 companies managed to overcome odds with some gains. Ranbaxy scrip came down only by 1.3 per cent to Rs 387 as at the end of November 2007 from Rs 392 on December 31, 2006. However, scrips like Cipla, Dr Reddy's Lab, Glenmark Pharma and Aventis Pharma declined over by 20 per cent during the first eleven months of 2007. Further, AstraZeneca, Cadila Healthcare, GlaxoSmithKline Pharma, Lupin, Panacea Biotec, Pfizer and Torrent Pharma shares also slide in the range between 10-20 per cent.

Alembic Ltd, Biocon, Dishman Pharmaceuticals, Nicholas Piramal, Orchid Chemicals, Plethico Pharma, Sun Pharmaceuticals and Woockhardt clocked a growth of over 10 per cent. IPCA Laboratories and Matrix Laboratories gained by one per cent and 3.8 per cent respectively.

Though the pharma scrip not shown any kind of investment interest during the first eleven months of 2007, the pharma analysts said that the sector has strong positive future and current phase is temporary one. Once the R&D efforts start yielding results the share price will start moving accordingly. The expiration of several patents in near future will create huge opportunity for R&D based Indian companies. Even if the short term outlook is under pressure, this is the right time to go for long term investments.
View Table Scrip Movements on BSE