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Indian pharma Sector outlook : Golden lifeline
India is fast becoming awash with lifestyle-related illnesses. Demographic
change and unhealthy nutrition and habits have given rise to new killer
diseases. This will provide domestic pharmaceutical players sustainable
growth opportunities. Those focused on the deadly target are well placed
to realise better growth, profitability and higher return on capital
employed. We prefer Sun Pharma, Cipla, Cadila Healthcare and Torrent
Pharma and expect a 16-22% net profit Cagr over FY11-13CL.
Rising burden of lifestyle diseases
Changing demographics, increasing affordability of food, and sedentary lifestyles
are key contributing factors to the increase in noncommunicable diseases (NCDs).
Globally, NCDs account for about 60% of all deaths and are on an uptrend.
According to the WHO, the cumulative economic impact of NCDs on India is more
than US$237bn for the 10 years to 2015.
Accelerating growth for Indian pharma
The prevalence of lifestyle illness, particularly diabetes and cardiovascular disease,
will drive growth of new therapies in the Indian pharma market in the next decade.
According to IMS Health, the industry grew 17% YoY to reach US$9.8bn in 2009.
Chronic therapies, with their superior growth profiles, are likely to comprise more
than 50% of the market by 2020 and will push up overall market growth.
Cardiovascular and diabetes segments will lead the growth to expand sixfold by 2020.
With improving healthcare access, we also expect volume growth to increase,
especially as domestic firms enhance penetration in tier-I and tier-II cities.
Our preferred plays
Sun Pharma, Cadila Healthcare, Torrent Pharma and Cipla are well positioned to
take advantage of changing trends as chronic therapies generate higher revenue.
Over the past decade, Sun Pharma and Cadila have grown the fastest in the
domestic space, delivering high return ratios.
We expect a 16-22% Cagr in net profits over FY11-13CL for these four companies.
With a competitive pricing environment, we do not see price controls as a major
threat to the industry. See our detailed company notes at the back of the report.
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