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India Pharma: Global healing
We initiate coverage on Indian Pharma with Overweight stance
on strong growth prospects for generics and supporting macro
parameters. Our top picks are Aurobindo, Ranbaxy, Glenmark,
Ipca, Jubilant and Dishman; we have a Sell on Cipla and Biocon.
Supporting macro parameters. Growing per-capita income and high
elasticity of healthcare demand bode well for 15% FY10-14e CAGR in
the domestic market. We expect exports CAGR of +20%, given largest
number of US FDA-approved plants outside the US, strong chemistry
skills, cost advantage and growth prospects.
Generics manufacturers in sweet spot; domestic formulations
seeing traction. Patent expiries worth >US$200bn in CY10-15, focus
on generics and emerging innovator-generics partnerships provide
significant opportunities for Indian players. Domestic formulations
would sustain 15% FY10-14e CAGR, driven by rising lifestyle diseases
and increasing reach to rural areas.
M&As pick up speed. We believe the M&A trend is likely to
continue, given MNCs focus to enter India due to higher (mid teens)
long-term growth prospects, gaining access to US FDA-approved
capacities and product baskets, and leveraging the low-cost model.
Premium valuations to sustain. BSE Healthcare has been trading
at an average of 40% premium (forward P/E) to the Sensex; at
present, the premium is down to 26%, which is unwarranted, given
18.8% PAT CAGR over FY10-13e and likelihood of more M&As.
Risks. i) Currency fluctuation ii) pricing pressure for generics in
developed markets and iii) regulatory hurdles.
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