In an interview to CNBCTV-18, Anmol Ganjoo of JM Financial gave valuable insights about top Pharma stocks
Ipca Labs – A Double Conviction Pick:
We absolutely persist with a buy on Ipca and double our conviction on that. It is predicated on the basic theme that whenever any Indian company tries to up its export game, they have had teething troubles in terms of compliance and it is a learning game which Ipca should be able to walk its way through. It is anybody’s guess whether the resolution takes six or nine months but consistent with our belief that you back good companies through tough times, we double our conviction on Ipca. A great management, great allocators of capital, yes going through a bit of a bother as far as the US and Ratlam facilities are concerned but we take this opportunity to look at the price point as been extremely attractive. It trades at a 30 percent discount to most of its peers do assuming stressed earnings for the company in FY15 and FY16 which is pretty harsh in our view given that you are discounting complete US revenues and some negative operating leverage also on account of remediation cost. But we stay put as far as our buy on Ipca is concerned.
Torrent Pharma – expected to give compound returns:
Torrent Pharma is something we continue to back but in terms of our pecking order we still would back Ipca. Torrent Pharma has done a fantastic job in terms of turning around its Elder Pharma acquisition. Domestic growth now is in line with best of the peers at 18 percent. Exports – after the Cymbalta one-time gain have stabilised and are still recording growth. So quite a lot going for the company both on domestic as well as export front and continue to be bullish. The only thing is that most of the rerating in terms of multiple is now done and the returns from the stock will be in line with earnings growth of around 15-20 percent CAGR.
Dr Reddys, Lupin & Cipla – Large cap stocks one cannot go wrong with:
In terms of pecking order we like Dr Reddys and Lupin in the large cap space. We also like Cipla except the fact that it has run-up too quickly too fast for our comfort but Dr Reddys and Lupin do remain our top large cap picks.
Sun Pharma – Top quality but expensive at present:
Post Ranbaxy acquisition, Sun Pharma has moved up 70%, adding USD 12-14 billion of market cap.
Sun Pharma is a buy but we are slightly cautious given the strong run-up that the stock has had. It is a question of quibbling as we analysts do with the price. However, it is not to say that they are not on top of the game and are not aggressively participating in whatever opportunities come their way but it is just that at current price points we are not as comfortable as we were a couple of months back. So it is more a price point discussion as opposed to any kind of pessimism as far as earnings growth etc is concerned.