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UBS Investment Research
India Pharmaceutical Sector
Strong earnings visibility drives valuation
�� Remain positive on the sector given strong earnings momentum
We believe the growth outlook for Indian pharmaceutical companies is strong,
driven by new launches in the US market and rapid growth in emerging markets
such as India, Russia and South Africa. While the EU business remains under
pressure from regulatory changes and pricing, we forecast revenue and net profit
CAGRs of 20% and 23%, respectively, for companies under our coverage, ex-
Ranbaxy, over FY10-13.
�� Strong visibility and scale-up in US business in the next two years
IMS estimates more than US$50bn worth of drugs are likely to become generic in
the US in 2011-12. Given the strong pipeline of outstanding filings and first-to-file
launches, we expect revenue and earnings momentum to remain strong for Indian
generic companies. We believe there is a high probability of further consensus
earnings upgrades due to new launches and positive operating leverage for base
businesses.
We expect the companies under our coverage to grow faster than the sector in
India, driven by market share gains from smaller companies and improving
distribution. Other emerging markets also offer strong growth opportunities and
companies are increasing their presence to benefit from this.
�� Valuation: maintain Buy ratings on Ranbaxy, Dr Reddy’s and Lupin
Our preferred picks remain Ranbaxy and Dr Reddy’s; we continue to be
significantly ahead of consensus earnings. Lupin is our other Buy-rated stock. We
maintain our Sell ratings on Cipla and Glenmark and our Neutral rating on Sun
Pharma.
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