Large pharma companies to see muted growth in FY16

After exiting FY15 on a weak note, the pharmaceutical sector appears to be showing signs of improvement. While analysts expected little to change in the first half of the financial year, the June quarter has been better than expected. Lack of product approvals and regulatory clearances to facilities have been issues that have plagued the sector. However, expectations have been reset now and stock prices have corrected in line with that Stock Market Trading Tips

In the first quarter, most companies except Lupin reported operational improvement. A large part of this was driven by contribution by one-off product launches in the US. For instance, the quarterly performance of Torrent was boosted by the launch of gAbilify and Cipla's by gNexium, which led to a surge in operating margins during the quarter. Other than these two companies, most other pharmaceutical companies reported muted growth due to fewer approvals.

The Street is fast coming to terms with the fact that the sector’s double-digit annual growth rates can no longer be taken for granted. While some pharma companies such as Aurobindo and Glenmark have got product approvals, what will be a differentiating factor would be approvals for high-margin products Financial Astrology Tips

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The slow pace of approvals is expected to continue for another couple of quarters. Recovery is expected to be back-ended. Most large companies believe approvals are likely to pick up from the second half of this financial year and not before.

JM Financial does not see any cause for concern as industry-wide issues such as delay in US Food and Drug Administration approvals and supply chain issues result in pushing forward growth by a quarter at worst. The brokerage believes companies expect higher approvals in FY16.

In addition to slowdown in approvals, the recent weakness in emerging market currencies has impacted the financials of pharma companies adversely. Reliance Securities says exposure to Russia, CIS countries and Venezuela hurt the operating margins of companies Himanshu Tiwari Astrologer Blog 

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The recent fall in stock prices has also helped improve the sector's outlook. Also, with the patents of some large drugs expiring, select Indian companies could benefit. JM Financial refers to these as ‘near term pipeline’. Torrent, Cipla and even Lupin are expected to benefit from patent expiries of blockbuster drugs such as gNexium, gAbilify in the short-term.

Analysts believe Dr Reddy’s should consolidate its share in sirolimus, gValcyte and Habitrol while Sun’s gGleevec launch should help in only partly mitigating Halol side effects.

Growth in India is a bright spot for most large companies. The India business of listed pharma players grew 13.5 per cent year-on-year and 18.3 per cent quarter-on-quarter. After a spate of earnings downgrades earlier this year, it is best to be cautious while picking stocks Jackpot Stocks Trading Tips