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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Indian pharma has outperformed the market due to superior
growth prospects and continued interest of MNCs in Indian firms.
The growth trajectory in the key markets is still the same and thus
we assume coverage with a positive view on the sector.
● Presence of Indian companies in the non-urban markets of India
is picking up and some companies have increased doctor
coverage to 70%. These ventures are now beyond the pilot stage
and have already started contributing to the volume growth.
● Exports still hold significant promise as Indian firms have a low
market share of 10% in the US and 5% in the emerging markets
(EMs). In the US, companies are moving up the curve by investing
in branded portfolio and niche therapies while growth in EMs is
even stronger with presence limited to just one-two markets.
● Our top picks are Lupin and Glenmark. Both should re-rate as the
margins for their base business improve. Fondaparinux approval
is key for Dr. Reddy’s; buy fresh Russian headwinds and Allegra
OTC switch is a near term dampener. We maintain NEUTRAL on
Sun and Cipla and UNDERPERFORM on Ranbaxy and Glaxo
Domestic growth has picked up and is sustainable
Sales force expansion has yielded positive results and volume growth
for the industry has picked up. Majority of this growth is from nonurban
markets as metros are growing at single-digit rates. Industry
experts believe that there is a first mover advantage in these markets,
which explains some companies increasing doctor coverage to as
high as 70%. Only the top 20 companies are expanding into rural
areas and thus will maintain above industry growth rates. Success of
the new model is important as it helps to fund export growth.
Growth acceleration will come from exports
Indian firms have a low market share of 10% in the US and 5% in the
emerging markets (EMs). In the US, companies are moving up the
curve by investing in a branded portfolio and niche therapies while
growth prospects in EMs are even stronger with current presence
limited to just one or two markets. The now matured approach of the
companies, their strong balance sheet and experience with branded
generic markets instils us with confidence about growth prospects.
Lupin and Glenmark are our top picks
● Lupin: Forward multiples have been impacted by weak 3Q11
results, delay in the launch of Allernaze and postponement of the
oral contraceptive launch from March 2011 to September 2011.
However, these are temporary setbacks and the overall growth
story is still intact. Lupin’s strong franchise in India and the US
market should ensure a strong EBITDA CAGR of 25% over the
next two years. The next catalyst for the stock is launch of
Allernaze and approval of the oral contraceptive products.
● Glenmark: We are positive on Glenmark for two reasons: (1)
sales and margin recovery expected in the US and Latin America
business in FY12 and (2) its R&D pipeline could throw positive
surprises in future (currently assigned no value). However, we
maintain that margin recovery and balance sheet improvement are
critical to the stock for rerating.
● Dr. Reddy’s: Positive catalyst for the stock is Fondaparinux
approval. However, Dr. Reddy’s will have to stop selling all Allegra
prescription products in the prescription market when Sanofi
launches its Allegra OTC products in March 2011. Additionally, the
Russian government is considering state control over prices of all
drugs priced at more than RUB100. If it goes through, DRL’s
Russian profits may get impacted. Therefore we moderate our
view and reduce target price to Rs1,760 (Rs1,850 earlier).
● Sun Pharma: We believe the Taxotere launch and base business
upside are factored into the stock price. We disagree that Taro
should be given Sun’s multiple, as there could be significant
downward revisions when the CY09 and CY10 audited numbers
are available.
● Cipla: We maintain a NEUTRAL on Cipla, as near-term growth in
the domestic and export business should be muted. Growth in the
export market is expected to pick up in 2H12, when sales from the
Indore SEZ ramp up. Generic combination inhaler opportunity is
significant, but it is still at least two years away.
● Ranbaxy: We agree CY11 does not represent normalised
margins for Ranbaxy and thus we value the company at CY12.
However, the margin of safety is still low with the stock, as it is
factoring in all FTF clearances, no penalty on the resolution of US
FDA and DoJ cases and perfect execution under project Viraat in
the domestic market. Maintain UNDERPERFORM.
● Glaxo: We continue to like Glaxo’s India-centric business model,
where majority of the costs are variable and working capital cycle
is one of the shortest in the industry. We maintain that new
product opportunities for the company are few and it should
continue to grow at below the industry average growth. We
maintain an UNDERPERFORM rating, despite valuing the stock at
a 20% premium to the sector average.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Indian pharma has outperformed the market due to superior
growth prospects and continued interest of MNCs in Indian firms.
The growth trajectory in the key markets is still the same and thus
we assume coverage with a positive view on the sector.
● Presence of Indian companies in the non-urban markets of India
is picking up and some companies have increased doctor
coverage to 70%. These ventures are now beyond the pilot stage
and have already started contributing to the volume growth.
● Exports still hold significant promise as Indian firms have a low
market share of 10% in the US and 5% in the emerging markets
(EMs). In the US, companies are moving up the curve by investing
in branded portfolio and niche therapies while growth in EMs is
even stronger with presence limited to just one-two markets.
● Our top picks are Lupin and Glenmark. Both should re-rate as the
margins for their base business improve. Fondaparinux approval
is key for Dr. Reddy’s; buy fresh Russian headwinds and Allegra
OTC switch is a near term dampener. We maintain NEUTRAL on
Sun and Cipla and UNDERPERFORM on Ranbaxy and Glaxo
Domestic growth has picked up and is sustainable
Sales force expansion has yielded positive results and volume growth
for the industry has picked up. Majority of this growth is from nonurban
markets as metros are growing at single-digit rates. Industry
experts believe that there is a first mover advantage in these markets,
which explains some companies increasing doctor coverage to as
high as 70%. Only the top 20 companies are expanding into rural
areas and thus will maintain above industry growth rates. Success of
the new model is important as it helps to fund export growth.
Growth acceleration will come from exports
Indian firms have a low market share of 10% in the US and 5% in the
emerging markets (EMs). In the US, companies are moving up the
curve by investing in a branded portfolio and niche therapies while
growth prospects in EMs are even stronger with current presence
limited to just one or two markets. The now matured approach of the
companies, their strong balance sheet and experience with branded
generic markets instils us with confidence about growth prospects.
Lupin and Glenmark are our top picks
● Lupin: Forward multiples have been impacted by weak 3Q11
results, delay in the launch of Allernaze and postponement of the
oral contraceptive launch from March 2011 to September 2011.
However, these are temporary setbacks and the overall growth
story is still intact. Lupin’s strong franchise in India and the US
market should ensure a strong EBITDA CAGR of 25% over the
next two years. The next catalyst for the stock is launch of
Allernaze and approval of the oral contraceptive products.
● Glenmark: We are positive on Glenmark for two reasons: (1)
sales and margin recovery expected in the US and Latin America
business in FY12 and (2) its R&D pipeline could throw positive
surprises in future (currently assigned no value). However, we
maintain that margin recovery and balance sheet improvement are
critical to the stock for rerating.
● Dr. Reddy’s: Positive catalyst for the stock is Fondaparinux
approval. However, Dr. Reddy’s will have to stop selling all Allegra
prescription products in the prescription market when Sanofi
launches its Allegra OTC products in March 2011. Additionally, the
Russian government is considering state control over prices of all
drugs priced at more than RUB100. If it goes through, DRL’s
Russian profits may get impacted. Therefore we moderate our
view and reduce target price to Rs1,760 (Rs1,850 earlier).
● Sun Pharma: We believe the Taxotere launch and base business
upside are factored into the stock price. We disagree that Taro
should be given Sun’s multiple, as there could be significant
downward revisions when the CY09 and CY10 audited numbers
are available.
● Cipla: We maintain a NEUTRAL on Cipla, as near-term growth in
the domestic and export business should be muted. Growth in the
export market is expected to pick up in 2H12, when sales from the
Indore SEZ ramp up. Generic combination inhaler opportunity is
significant, but it is still at least two years away.
● Ranbaxy: We agree CY11 does not represent normalised
margins for Ranbaxy and thus we value the company at CY12.
However, the margin of safety is still low with the stock, as it is
factoring in all FTF clearances, no penalty on the resolution of US
FDA and DoJ cases and perfect execution under project Viraat in
the domestic market. Maintain UNDERPERFORM.
● Glaxo: We continue to like Glaxo’s India-centric business model,
where majority of the costs are variable and working capital cycle
is one of the shortest in the industry. We maintain that new
product opportunities for the company are few and it should
continue to grow at below the industry average growth. We
maintain an UNDERPERFORM rating, despite valuing the stock at
a 20% premium to the sector average.
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