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Top 5 Pharma Stocks in India

Created on 30 Aug 2021

Wraps up in 5 Min

Read by 6.7k people

Updated on 10 Sep 2022

“Ever since human species came into existence, wounds and diseases have been part and parcel of their life”.

When one studies the basics of accounting, they get enlightened about the 3 accounting assumptions on which the entire accounting cycle revolves: Going Concern, Consistency, and Accrual Concept. Given the demand that pharmaceuticals have and will continue to have, “The Going Concern” concept no more seems to be an assumption; rather, it is more a bite of the reality sandwich.

In this blog, we shall decode the same Pharma industry and perform a fundamental analysis of the Top 5 Pharma Companies in India.

A glimpse of India’s Pharma Industry

India currently ranks 3rd worldwide for pharma production by volume and 14th by value. When it comes to vaccines, which is the buzzword these days, India's pharma sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US, and 25% of all medicine in the UK.

Our country is blessed with brilliant minds that contribute to the R&D space and make India what it is when discussed in the context of pharma’s market share in India. Data speaks for itself. Over 80% of the antiretroviral drugs used to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

According to the Indian Economic Survey 2021, the growth of the domestic market is expected to be 3x in the next decade. Currently, India’s domestic pharmaceutical market is estimated to stand around US$ 42 billion in 2021 and is likely to reach US$ 65 billion by 2024, and further, it will expand to reach ~US$ 120-130 billion by 2030.

All this makes it a buzzing industry, and surely the pandemic has added to its buzz. Let us now scrutinize the top 5 stocks from the Indian subcontinent point of view.

Top Pharma Stocks in India

The following are the top pharma companies' stocks in India:

Dr. Reddy's Laboratories Ltd

This Pharma mammoth commenced its generics business in 1986 from the Indian subcontinent and is today a trusted name in the healthcare industry, consistently serving the needs of millions of patients with high quality, affordable and innovative medicines across therapy areas. The company’s shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and New York Stock Exchange. With a market cap of 75,820 crores, it ranks 3rd in the list of Indian pharma stocks when ranked as per market capitalization.

 Let us have a look at the financials of the company:

Metric for Analysis

Data Point

Comments

PE Ratio

43.64

Fairly Valued

Debt-Equity Ratio

0.17

Low and Attractive

5-year ROE

11.39

Good and Attractive

ROCE

11.49

Good and Attractive

Current Ratio

1.8

Average

It is a 4 Finstar stock considering its valuation, efficiency, and financials. The company has a low debt to equity, leading to a greater ICR of 66.44, and the CFO/PAT is 1.28, which seems attractive.

Alkem Laboratories Ltd

Alkem Laboratories is amongst the largest generic and specialty pharmaceutical companies operating in India. Its portfolio includes pronounced brands like Clavam, Pan, Pan-D, and Taxim-O, which feature amongst India's top 50 pharmaceutical brands. For over a decade, its dominance in the anti-infective segment has remained undebatable. A part of its revenue is generated via exports and offshore sales. The company spends excessively on its manufacturing plants and has manufacturing facilities at multiple locations in India and the United States of America. 

Let’s take a glance at the vital statistics of the company in the image below.

(Source: Ticker)

Metric for Analysis

Data Point

Comments

PE Ratio

28.6

Low and Undervalued

Debt-Equity Ratio

0.23

Low and Attractive

5-year ROE

18.92%

Good and Attractive

5- year ROCE

19.38%

High and Attractive

Current Ratio

1.92

Attractive

These aspects make Alkem Laboratories a very lucrative stock in this highly competitive business landscape, i.e., Pharma Industry.

Abbott India Ltd

Since 1910, Abbott has been dedicated to helping people in India live healthier lives through a diverse portfolio of science-based nutritional products, diagnostic tools, branded generic pharmaceuticals, and diabetes and vascular devices.  Their product portfolio is blended across a mix of global and local products for people in India. Its in-house development, medical teams, and skilled human capital undertake product and clinical development tailored to the unique needs of the Indian market.  The company also has multiple therapeutic categories like women's health, gastroenterology, cardiology, metabolic disorders, and primary care.

Their employees work to produce high-quality, high-volume formulations using cost-efficient processes, and its trained personnel are dedicated to ensuring compliance with international quality standards. Hence, its human capital adds a distinct worth to the company's value and becomes its competitive advantage.

Metric for Analysis

Data Point

Comments

PE Ratio

57.31

Fairly Valued

Debt-Equity Ratio

0

Low and Attractive

5-year ROE

25.5

High and Attractive

5-year ROCE

37.3

High and Attractive

Current Ratio

3.41

High and Attractive

The new synonym for the word consistency could be Abbott India Ltd, given its track record in terms of ROE and ROCE.

Cipla Ltd

Incorporated in 1935, Cipla Limited is a global pharmaceutical company focused on the responsible and sustainable growth of complex generics and deepening portfolio in home markets of India, South Africa, and North America, as well as key regulated and emerging markets. The company has a wide network of manufacturing facilities, trading network in the lights of 1000’s medical representatives- brand partners and other incidental operations in India and International markets.

Metric for Analysis

Data Point

Comments

PE Ratio

29.3

Fairly Valued

Debt-Equity Ratio

0.10

Low and Attractive

5-year ROE

10.79

Good and Attractive

5-year ROCE

12.16

High and Attractive

Current Ratio

2.88

High and Attractive

The image above depicts that Cipla has had a constant trading volume over the past 3 years, apart from the pandemic-driven year where pharma stocks were spoiled for choice by investors and traders.

Sun Pharmaceutical Industries Ltd

Sun Pharmaceutical Industries was established back in 1983 with five psychiatry products and a two-person marketing team. Sun Pharma is presently the 5th largest specialty generic pharmaceutical company globally and India’s largest pharmaceutical company. It has a  global presence that is supported by several manufacturing facilities across a few continents. The majority of its revenue share is derived from the US markets, where the company is the leader in the generic dermatology segment. 

Metric for Analysis

Data Point

Comments

PE Ratio

30.76

Fairly Valued

Debt-Equity Ratio

0.27

Low and Attractive

5-year ROE

10.41

Attractive

5-year ROCE

10.86

Attractive

Current Ratio

1.89

Attractive

The figure below depicts its shareholding pattern, which is quite diversified. This is a blessing for the stock because Mutual Funds and FII ( Foreign Institutional Investors)  have significant stakes in the company within their portfolios, and this will provide confidence to the retail investors as well.

Conclusion

William Osler once said, “Medicine is a science of uncertainty and an art of probability”. Similarly, finding fundamentally sound pharma stocks is a blend of both art and science and a game of large numbers, i.e., Probability. Pharma stocks should definitely find their place in every individual's equity portfolio, and history has provided enough evidence for the same.

Valuations don't speak for themselves, certain pharma stocks might be overvalued and overpriced in current market dynamics, but high valuations are no barrier, especially in this bull run, when the fundamentals are strong and attractive.

Happy Investing!

*Disclaimer: This should not be construed as investment advice. Invest only after proper research.

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Aakarsh Bedi

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Aakarsh is pursuing his post graduation from N.L. Dalmia Institute, Mumbai with his major specialization being accounting and finance. His curiosity for content writing has made him put together series of articles for diverse magazines. He considers penning down his thoughts as a soul relieving activity.

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