[T.S.R:16061] Indian Pharma: Will It Heal The Globe? (AnandRathi)

Pharmaceuticals - India Pharma: Global healing   We initiate coverage on Indian Pharma with Overweight stance on strong growth prospects for generics and supporting macro parameters. Our top picks are Aurobindo, Ranbaxy, Glenmark, Ipca, Jubilant and Dishman; we have a Sell on Cipla and Biocon.               Supporting macro parameters. Growing per-capita income and high elasticity of healthcare demand bode well for 15% FY10-14e CAGR in the domestic market. We expect exports CAGR of +20%, given largest number of US FDA-approved plants outside the US, strong chemistry skills, cost advantage and growth prospects.             Generics manufacturers in sweet spot; domestic formulations seeing traction. Patent expiries worth >US$200bn in CY10-15, focus on generics and emerging innovator-generics partnerships provide significant opportunities for Indian players. Domestic formulations would sustain 15% FY10-14e CAGR, driven by rising lifestyle diseases and increasing reach to rural areas.             M&As pick up speed. We believe the M&A trend is likely to continue, given MNCs focus to enter India due to higher (mid teens) long-term growth prospects, gaining access to US FDA-approved capacities and product baskets, and leveraging the low-cost model.             Premium valuations to sustain. BSE Healthcare has been trading at an average of 40% premium (forward P/E) to the Sensex; at present, the premium is down to 26%, which is unwarranted, given 18.8% PAT CAGR over FY10-13e and likelihood of more M&As.             Risks. i) Currency fluctuation ii) pricing pressure for generics in developed markets and iii) regulatory hurdles. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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