More gains ahead for pharma stocks

Pharmaceutical sector stocks -- including Aurobindo Pharma, Cadila and Wockhardt -- saw some selling last week due to profit-booking and due to concerns on premium valuations.

While the sector’s price to earnings (PE) ratio has earlier traded at a premium to the broader markets. this has further expanded in this financial year. From 41 per cent in 2012, the premium to the benchmark Sensex had risen to 53 per cent in September last year and has since crossed 60 per cent. The sector benefited from growth in the high-margin Indian formulation business and a strong presence in the US generics space during FY13 and FY14. In addition, a rupee depreciation of 11-14 per cent added to the gains.

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Despite the growing valuation premium to the Sensex, analysts at Axis Capital say these are reasonable. They presume 24 per cent annual earnings growth over the next two years, on the back of structural drivers such as higher entry barriers (for competitors) in the US and rising spending on health care in India and other emerging markets.

https://www.business-standard.com/article/companies/more-gains-ahead-for-pharma-stocks-115032400840_1.html