Indian Pharma sector: Strong growth outlook beyond defensive play
Though the growth in chronic (lifestyle) disease treatments will outplace the market; acute segments will also report a healthy performance with growth in excess of 10 percent. Jay Shankar Economist Vice President, Relegate Capital Markets, highlights the key growth drivers.
Resilient and high yielding that is how we continue to describe the Indian pharmaceutical sector considering it more than just a defensive play, the sector has combated the recession of 2008-09, with relative ease, drawing support largely from the inelastic demand for therapeutic drugs and healthcare facilities. The journey ahead, in our opinion, also seems to be set on a smooth terrain as the growth outlook for the sector appears to have improved significantly.
A few pointers:
The government’s Vision 2015 statement indicates an 18 percent plus CAGR for the pharma sector, translating to a doubling of revenues to $40 billion over the next five years. Growth will be driven by all verticals: domestics formulations, generics exports, and outsourcing (CRAMS). The government has recently announced the setting up of a venture fund that will target the infusion of Rs 20 billion into the sector. The idea is to facilitate investments has recently announced the setting up of a venture fund that will target the infusion of Rs. 20 billion into the sector. The idea is to facilitate investments in the fund that are expected to come mainly from the industry.
Our pharma sector lead (Vikas Sonawale) expects the base pharma business to record a 16 percent CAGR over FY09-FY11, driven by growth in both, domestic as well as US markets.
Sector valuations continue to be attractive at a P/E of 17.9x FY10E and 16.3x FY11E base business earnings. Large caps trade at 18-20x FY10E, a 10-30 percent premium to the broader market – justified by lower earnings risk and stronger balance sheets. Mid caps are available at 8-14x FY10E, The risk reward is therefore favourable in our view. Our top picks in the sector include Sun Pharma DRL, and Biocon.
Rising purchasing power and increasing penetration of health insurance will support strong growth of 12-14 percent in the domestic formulations business over the next five years. This growth will be driven by every user segment metros, tier-II cities, rural markets, hospitals, and OTCs. Though the growth in chronic (lifestyle) disease treatments will outpace the market, acute segments will also report a healthy performance with growth in excess of 10 percent.
Unfavourable currency movemens (mainly US dollar and Euro) and rising regulatory pressures, however, remain our key converns for the sector.
Resilient and high yielding that is how we continue to describe the Indian pharmaceutical sector considering it more than just a defensive play, the sector has combated the recession of 2008-09, with relative ease, drawing support largely from the inelastic demand for therapeutic drugs and healthcare facilities. The journey ahead, in our opinion, also seems to be set on a smooth terrain as the growth outlook for the sector appears to have improved significantly.
A few pointers:
Where the | ||
Country | Generic Penetration | |
65-70% | Mature, Large | |
70% | Mature, Large | |
60-65% | Mature, Large | |
19% | Growing, Large | |
50% | Mature | |
20% | Growing, Large | |
18% | Growing | |
10% | Growing | |
Global | $90 billion | |
Source: ICRA, Data as of 2008 | ||
Recent Emerging Market Acquisitions and Tie-ups | ||
MNC Name | Target | County |
Sanofi-Aventis | Shantha Biotech Zentiva Medley Pharma Kendrick Bioton Wostok | CEE Region |
GSK | BMS DRL | Middle East South Africa |
Daichii-Sankyo | Ranbaxy | |
Hospira | Orchid Chemicals | |
Pfizer | Aurobindo Claris Life Sciences Vetnex Animal Health | |
Novartis AG | Novartis | |
Mylan Pharma | Matrix Labs | |
Vetoquinol | Wockhardt Animal Health | |
Valeant Pharma | Tecnofarma | |
Source: o3 Capital Analysis | ||
- The domestic pharma industry continues to grow at 11-12 percent, dwarfing the global average of fivesix percent. Similarly, improved traction in productivity trends has prevented margin pressures, notwithstanding the intensifying competitive landscape domestically.
- The CRAMS (contract Research and Manufacturing Services) segment continues to enjoy the benefits of a low base effect.
- There will be a deluge of patent expiries in the next three-four years, having implications for the generics. Also, there is an emerging consensus globally in favour of generics and low-cost medical facilities especially because of world population ageing being unprecedented, pervasive, and enduring. This has forced global pharma players to re-orient their business models towards generics and developing markets in a bid to protect their margins and market shares. Alliances like Pfizer-Aurobindo and GSK-Dr Reddy’s Laboratories (DRL) are the consequences.
- Indian pharma majors like Sun Pharma and DRL are likely to derive significant benefit from some non-recurring Para-IV earnings.
- The competitive environment in the US has improved of late, as indicated by the declining trends in NDA filings in the past few quarters.
Product Development Pipeline | |||||
Company | Drug Discovery | Pre-clinical | Phase 1I | Phase 2 | Phase 3 |
Sun Pharma | - | 2 | - | 1 | - |
Biocon | - | 4 | - | 1 | 2 |
Cadila | - | 4 | 1 | - | - |
Piramal | 5 | 5 | 3 | 5 | - |
Glenmark | 4 | 3 | 1 | 4 | 1 |
Ranbaxy | 8-10 | 4-6 | - | 1 | 1 |
Dr. Reddy’s | 5 | 3 | 2 | - | 1 |
Source: o3 Capital Analysis | |||||
Government pitches in Sector to get Rs 20 billion stimulus
The government’s Vision 2015 statement indicates an 18 percent plus CAGR for the pharma sector, translating to a doubling of revenues to $40 billion over the next five years. Growth will be driven by all verticals: domestics formulations, generics exports, and outsourcing (CRAMS). The government has recently announced the setting up of a venture fund that will target the infusion of Rs 20 billion into the sector. The idea is to facilitate investments has recently announced the setting up of a venture fund that will target the infusion of Rs. 20 billion into the sector. The idea is to facilitate investments in the fund that are expected to come mainly from the industry.
Attractive Sector valuations – a clear edge
Our pharma sector lead (Vikas Sonawale) expects the base pharma business to record a 16 percent CAGR over FY09-FY11, driven by growth in both, domestic as well as US markets.
Sector valuations continue to be attractive at a P/E of 17.9x FY10E and 16.3x FY11E base business earnings. Large caps trade at 18-20x FY10E, a 10-30 percent premium to the broader market – justified by lower earnings risk and stronger balance sheets. Mid caps are available at 8-14x FY10E, The risk reward is therefore favourable in our view. Our top picks in the sector include Sun Pharma DRL, and Biocon.
Sector to see broad-based growth ahead
Rising purchasing power and increasing penetration of health insurance will support strong growth of 12-14 percent in the domestic formulations business over the next five years. This growth will be driven by every user segment metros, tier-II cities, rural markets, hospitals, and OTCs. Though the growth in chronic (lifestyle) disease treatments will outpace the market, acute segments will also report a healthy performance with growth in excess of 10 percent.
Unfavourable currency movemens (mainly US dollar and Euro) and rising regulatory pressures, however, remain our key converns for the sector.
Posts
No comments:
Post a Comment