Sharekhan has expressed concern about the increased scrutiny by the US FDA. Due to this there was delay in production and increased guidance for research and development. This increased marketing costs in the near term. He also expressed concern over the growing risk of increased regulatory scrutiny by the US FDA. There may be a constraint on its valuation
Pharmaceutical companies released mixed results in the third quarter. Companies making some generic formulations did well in the US market. They showed a strong uptrend in the special and complex generic space. However some other companies failed to post a strong performance.
Overall, the combined revenue growth of pharmaceutical companies covered by sharekhan grew 11.8 per cent year-on-year in the third quarter. Operating profit margin also increased by 31 basis points year-on-year to 23.1 percent. But the combined net profit remained largely flat. Explain that one basis point is one hundredth of one percentage point.
The pharmaceutical companies covered by the security firm include Aurobindo Pharma, Cipla, Zydus Lifesciences, Sun Pharma, Dr Reddy's Laboratories, Diviz Laboratories, Ipca Labs, Lupin, Torrent Pharma, Biocon, Granules India, Laurus Labs, Abbott India, Strides Pharma, Caplin Point Laboratories and Gland Pharma.
FDA's concern
Although most drugmakers saw improvements in EBITDA margins in the quarter. Sharekhan has expressed concern about the increased scrutiny by the US Food and Drug Administration. This led to production delays and increased guidance for research and development. This increased marketing costs in the near term. Because of this, there may be difficulties in potentially strong operating performance.
The firm also highlighted the increased risk of increased regulatory scrutiny by the US FDA. Which can act as a constraint on the valuation of this sector.
According to the Sharekhan report, the firm prefers generic formulation companies in the pharmaceutical space due to its continuous launch of complexes and different products over the next two years. It gives preference to companies launching products, especially in the novel and biosimilar space. Which can increase revenue and profits in the medium term. He likes Zydus Lifesciences, Sun Pharma, Torrent Pharma, and Dr. Reddy's Laboratories in this sector.
Growth may be seen in the long term
Analysts at Sharekhan believe that they have a neutral opinion on the pharma sector in the near term. Despite this, Indian pharmaceutical companies are in a good position to take advantage of the opportunities. The reason for this is that they are globally competitive companies. These companies maintain a substantial share in most markets in the long term.
Also Read - A Strong Breakout Performance for this Stock priced below Rs 500
Sharekhan predicted marginally better performance as expected for the pharma index. He says that the valuation of shares of big companies like Sun Pharma, Zydus Life, Dr Reddy's and Torrent Pharma as well as niche India-focused companies like Abbott India has become good.
Disclaimer: The views and investment advice given on TradingNeu.com are the personal views and opinions of investment experts.) TradingNeu advises users to consult a certified expert before making any investment decision.