The year 2009 ended with a better note for the pharmaceutical and healthcare segment with consistent investors' support on account of its aggressive entry into highly regulated markets, mergers & acquisitions and investment in research and development. Increasing number of approvals from US and European authorities and better than expected growth in top line and bottom line during the first half of 2009-10 also helped the sector to fare better. Pharma shares have given better returns during 2009 to investors.
In line with other important segment of economy, the pharma segment attracted investors support and BSE Healthcare index of 21 pharma companies moved up by 69.2 per cent to 5018.33 points as at the end of the year 2009 from 2966.19 points as at the end of 2008. The BSE HC index touched to its yearly highest level at 5183.45 points on December 18, 2009 and the same was reached at its lowest level at 2490.86 points on March 6, 2009. However, the uncertainty regarding the impact of US Healthcare Reforms on Indian pharma segment put pressure on price movements of pharma segment during the last week of the year.
Alok B Agarwal, Head - research, advisory of Fortune Financial Services (India) Ltd, said, “BSE Healthcare index rose by almost 70 per cent in CY09. We believe this performance is unlikely to get repeated in CY10 and will be happy to see a further 30 per cent rise in BSE Healthcare index. Overall we are very bullish on Indian pharmaceutical story. Reasons are A) India pharma companies’ low cost business model B) huge & growing demand for generics, which will spur exports and also induce foreign pharma companies to enter into manufacturing & marketing tie ups for sale of drugs in international markets C) higher growth in domestic pharma market due to better health insurance coverage, increasing rural penetration due to mass healthcare projects.”
The year 2008 experienced worst recession in major countries and overall investment sentiment was under great pressure. The exchange rate of US Dollar v/s Indian Rupee was at Rs 49.21 as at the end of December 2008 as compared to Rs 46.76 as at the end of 2009. The low level of confidence of investors community including foreign financial institutions impacted the market capitalization. However, with the revival of economic conditions after the first half of 2009, investors, once again commence operations. The BSE Sensex started upward movements after May 2009 and same was followed by other major sectors of the Indian economy, including pharmaceutical and healthcare.
The Bombay Stock Exchange Sensex of 30 major entities moved up smartly by 81.3 per cent during 2009 and closed at 17464.81 points as at the end of the year 2009 from 9647.31 as at the end of 2008 on account of strong fund inflows from foreign financial institutions, domestic financial institutions including mutual funds and retail investors. The sentiment was aided by establishment of stronger government at Enter, revival of economic conditions in Western countries, relatively stable foreign exchange rates, higher GDP growth projections, improvement in Industrial production, growth in forex reserves, better liquidity in the monetary system, and strong earnings reports from Indian corporate sector.
While commenting the future of overall price movements in 2010, Agarwal said, “Our earnings estimates for FY10 & FY11 are Rs900 for FY10 & Rs1050 for FY11 assuming 16% earnings growth. India’s mean trading PE for the last ten years has been 15. Accordingly the sensex should trade between 13500 & 15750. However it is already trading above mean i.e.at 16.7XFY11E EPS of Rs1050. This is alright and the market is factoring in consistent earnings growth over the next three/four years. We believe this is in the realm of possibility because global economies are getting back on track with USA expected to clock GDP growth of 3.5% in CY10. This is great news for India’s exports. Going forward there could be earnings upside as well. If we consider sensex earnings of Rs1218 for FY12 the possible target for sensex can be 18270. We believe the market can trade between 13500 on the lower side and 21000 on the upper side.”
The pharma shares like Dr Reddy's Laboratories, Aurobindo, Cadila Healthcare, Torrent Pharma, Unichem Laboratories, Stride Arcolab, Orchid Chemicals, Biocon, Ipca Lab, Lupin, Jubilant Organosys, and few MNCs like Solvay Phrma, Novartis, Fulford and Ranbaxy received buying support and moved up over 100 per cent during 2009. Dr Reddy's Lab closed at Rs 1143 on December 31, 2009. Ranbaxy close at Rs 517.45, Lupin at Rs 1490.30, Aventis Pharma at Rs 1,695 and Biocon at Rs 276.30. Aventis reached at its 52-weeks highest level at Rs 1735 on the last day of the year 2009.
The pharma shares may get necessary support from investor in the year 2010 on account of better performance in the first half of 2009-10. The net sales of 75 pharmaceutical companies increased by 11 per cent to Rs 33,069 crore during the first half of 2009-10 as against Rs 29,785 crore in the corresponding period of last year. Though the net profit, after forex and other adjustments, increased by 26.5 per cent to Rs 4,449 crore from Rs 3,517 crore, the net profit before these adjustments improved marginally by 1.4 per cent to Rs 4,450 crore from Rs 4,390 crore. The mark-to-market adjustments and foreign exchange adjustments put pressure.
Further, the R&D expenditure of the top 25 pharma companies have thus increased by almost 17 per cent at Rs 3,210 crore during 2008-09 from Rs 2,747 crore in the previous year. The R&D expenditure as per cent of their standalone net sales worked out to 7.75 per cent in 2008-09 as compared to 7.60 per cent in the previous year. DRL filed 23 ANDAs and its tally reached at 159 ANDAs. Ranbaxy filed 6 ANDAs, Lupin (28), Orchid (58), Matrix Laboratories (20), Aurobindo Pharma (19), Alembic (8), Glenmark (22) Cadila Healthcare (19) during 2008-09. Aurobindo Pharma's cumulative filing of ANDAs upto March 2009 reached at 1,068. The cumulative filing of ANDAs of DRL reached at 159 followed by Cadila (92), Ranbaxy Laboratories (241), Lupin (90), Sun Pharma (107), Matrix Laboratories (61), Alembic (19). Thus the Indian pharma companies have developed strong product pipeline which is likely to generate higher revenue in the current year.
During the first half of the year 2009, the share price of several scrip were under pressure and company managements have stepped up their holding in the company through buyback of shares from the open market. The management of Merck Ltd, Alembic Ltd, Amrutanjan Healthcare, FDC Ltd, IPCA Laboratories and TTK Healthcare buyback shares from the market during 2009.
During the last couple of years, the majority equity stake of three important Indian pharma companies like Ranbaxy Laboratories, Matrix Laboratories and Dabur Pharma acquired by Daiichi Sankyo of Japan, Mylan Inc of USA and Fresenius Kabi of Germany respectively. Thus there are now 13 listed MNCs operating in India. Recently Matrix Lab scrip delisted from the stock exchanges. With challenging world market conditions, more and more major Indian companies are likely to fall in the net of MNCs in the coming years through acquisition route.
View Table Market Price of leading pharma companies