In 2020, the S&P BSE Healthcare index gained 61 per cent, outperforming all other sectoral gauges as well as the benchmark Sensex barometer, which rose 15 per cent. Stocks in the sector have seen a phenomenal run. India’s pharmaceutical sector accounts for the supply of more than 50 per cent of global demand for various vaccines, 40 per cent of generic demand for the US, and 25 per cent of all medicines for the UK. India contributes the second largest share of pharmaceutical and biotech workforce in the world. In 2019, the turnover of the country’s domestic pharmaceutical market reached Rs 1.4 lakh crore ($20.03 billion), marking a rise of 9.8 per cent compared to Rs 1.29 lakh crore ($18.12 billion) in the previous year.
Known as the pharmacy of the world, India currently holds an accountable share in the global market, and is the world’s biggest supplier of generics. The country gained its foothold on the global scene with its innovative generic drugs and active pharmaceutical ingredients (API). It accounts for around 30 per cent (by volume) and about 10 per cent (value) in the $70–80 billion US generics market. Is spite of growth in other fields, generics remain a large part of the market.
India’s pharmaceuticals sector is expected to grow to $100 billion by 2025. Pharmaceutical exports include bulk drugs, intermediates, drug formulations, biologicals, and Ayush, herbal and surgical products.
The current health crisis has been a blessing in disguise for pharma companies. These stocks recently bottomed out and entered a long-term potential bull market, following a long-term bear market since 2014.
The current health crisis has made people more aware and concerned on personal hygiene and safety.
Out of 35 companies with market capitalisation of over Rs 5,000 crore each, 15 were picked based on the highest returns in 10 years.
Here are some key observations in these companies:
Ajanta Pharma gave a return of 51.7%, the highest among the top 15 companies that gave an average return of 27.89%.
In most cases, the aggregate five-year return was lower compared to the one-year return.
Companies like Pfizer, Sanofi, Biocon and Ipca Laboratories could not make it to the top 10 positions on the basis of 10-year returns.
Leaders in terms of market capitalisation — such as Lupin, Cipla and Sun Pharma — could not even make it to the top 15 spots in terms of 10-year returns.
Companies such as Biocon, Pfizer and Sanofi feature lower in the list due to their very high R&D spends, depreciation and amortization costs.
ET CONTRIBUTORS
Medicine spending in India is projected to grow 9-12% over the next five years, pushing it among the top 10 countries. Going forward, better domestic sales growth will also depend on the ability of companies to align their product portfolios towards chronic therapies in the segments of cardiovascular diseases, anti-diabetes, anti-depressants and anti-cancers. There is good potential in pharma shares with continued growth visibility.
( Ajit R Sanghvi is Director, MSS Securities. Views are his own. Sagun Agarwal assisted in this research. )
