Top Indian pharma stocks to buy/hold: BNP Paribas shares preferred picks
Brokerage and research firm BNP Paribas continues to be selective with US generics and does not expect the profitability of this business to materially improve for drugmakers. It prefers pharma companies with clear FDA (Food and Drug Administration) status, a commercial specialty portfolio and a pipeline of complex generics.
“Price erosion in generics would keep growth in check, with new launches remaining critical. India is among the top five suppliers of pharma products in the US market, with pharmaceuticals becoming the largest imported commodity in the US. Value of import of pharma products from India has increased at an 8% CAGR over CY12-21,” said the brokerage note on Indian pharma sector.
With the softening of crude oil price and normalisation of supply chain issues, BNP Paribas expects raw material and freight costs to gradually moderate from elevated levels. This, along with the appreciation of USD should help gross and EBITDA margins improve, it highlighted as it continues to prefer India focused businesses over US generics. Sun Pharma remains its top stock pick, followed by JB Chemicals and Pharma (JBCP) in the Indian pharma space.
The brokerage house has Buy ratings on Aurobindo Pharma shares with a target price of ₹564, JB Chemicals and Pharmaceuticals (TP: ₹2,342), Sun Pharmaceutical Industries (TP: ₹1,164), Dr Reddy’s Laboratories (TP: ₹4,905), Torrent Pharmaceuticals (TP: ₹1,770), Divi’s Laboratories (TP: ₹3,874).
Meanwhile, it has Hold stances on Zydus Lifesciences (TP: ₹418), Cipla (TP: ₹1,038) whereas has Reduce rating on Lupin shares with a target price of ₹615 apiece.
Key catalysts for the sector are, as per the brokerage, are steady double-digit growth momentum in domestic pharma; resolution of USFDA issues at impacted plants as inspections have started; and normalisation of price erosion in US generics to mid-single digits.
Whereas, “Key risks to our positive view are: 1) regulatory hurdles in terms of FDA issues; 2) currency fluctuations; and 3) inflated raw material costs for a long period of time,” it added.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.