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Monday, March 25, 2013

Large Cap Pharma Picks!

Question: Can you please cover some Large-Cap Pharma stocks which will make good profits over the next 3-6 months.


Pharma Industry is one of the best sectors to invest in and is considered a defensive investment, although the firms in this sector have made money for investors in bullish markets, as well as preserved their investment even in a downtrend. Considering the aggressive growth of domestic Indian companies and rising Indian Drug exports, Pharma is one of the best bets for investors in these uncertain times.

Indian Pharma industry is the world's third-largest in terms of volume of production and is 14th largest in terms of value of production. Domestic consumption of Pharma products is close to $18 Billion and more than $10 Billion worth of Pharma products are exported each year, most of which is bulk drug exports. Firms in India use domestic low cost research and development centers to reverse engineer the bulk drugs and carry out bulk production for these molecules for which patent protection has expired.

Exports of Pharma products is growing at a annual rate of 21.25% and some of the best Indian companies in this sector are Dr Reddy, Ranbaxy, Sun Pharma and Cadila among others.

Dr. Reddy Laboratories 

Dr. Reddy's Laboratories is an integrated pharmaceutical company with three key business segments - Generics segment, Pharmaceutical and Active Ingredients segment and Proprietary Products segment. The company was founded by legendary Dr. Anji who passed away just a week back. The company boasts of over 190 medications, 60 active pharmaceutical ingredients for drug manufacture, diagnostic kits, and biotechnology products.

Dr Reddy has demonstrated good topline and bottomline growth, with revenues growing from 3330 crores in 2008 to over 6700 crores in year ending 2012. EPS in the same duration has improved from Rs 28.26 per share to over Rs 53.8 in year ending 2012. The firm has good track record of paying dividends since last 15 years and has paid 275% dividend in year 2012. Return on Equity (RoE) for the firm stands at 13.5% and Book Value per share is at Rs 396. Thus fundamentally speaking, a very good stock to invest in for long term gains and dividend benefits.

Technically speaking, Dr Reddy is currently seeing a good support at Rs 1718 level and is expected to face resistance at 1818 levels. Currently on Daily charts, this stock has made a Head and Shoulders kind of pattern, which will be confirmed at the break of 1700. The stock post that can see levels of upto 1600 as well. At lower levels of 1600 or so, investors can accumulate the stock and hold for 1900 kind of levels in next 6 months timeframe.

RanBaxy Laboratories 

Ranbaxy Laboratories was incorporated in India in 1961, went public in 1973 and Japanese firm Daiichi Sankyo gained majority control in 2008. Ranbaxy exports its products to 125 countries with operations in 43 countries and manufacturing facilities in eight countries.

Ranbaxy manufactures its products after procuring licenses from foreign pharmaceutical developers, and also does bulk drug manufacturing for products that are off-patent because the patents on such drugs have expired. Firm’s revenues have grown from Rs 4494 crores in 2008 to Rs 6303 crores in year ending 2012. Foreign promoters have significant shareholding of 63.54% and retail shareholding is less than 9.9%, which is a positive for the stock. United States is the biggest market for Ranbaxy, accounting for 28% of Ranbaxy's sales with all overseas markets accounting for over 75% of global sales.

Technically speaking, Ranbaxy has seen high levels of Rs 575 in recent past, and currently the stock is sitting close to support levels of Rs 365. This support at Rs 365 is a good support and is unlikely to break. Another good support is at Rs 400, where investors can accumulate for higher levels of Rs 470 and Rs 540 in next 6-12 months duration.

Sun Pharma 

Sun Pharma was established by Mr. Dilip Shanghvi in 1983 in Kolkata with 5 products to treat psychiatry ailments. Today the firm is a market leader in India in psychiatry, neurology, cardiology, orthopedics, ophthalmology, gastroenterology and nephrology products.

Over 57% of Sun Pharma sales are from markets outside India, primarily in the US and firm manufactures across 23 locations globally. In the US, the company sells over 200 generic drugs, with another 150 awaiting approval from the US authorities.

Sun Pharma is the third largest and the most profitable pharmaceutical company in India as well as the largest pharmaceutical company by market capitalization (over 85,000 crores) on the Indian exchanges.

If you would have invested Rs 1 Lakh in Sun Pharma stock in 2003, you would be holding stock worth more than Thirty Lakhs today! The stock has grown exponentially and explosively over the past decade on the back of its stupendous fundamental performance. Rs. 770 is a good support for the stock and another support is at Rs 730. Rs. 675 is another strong support for the firm. The stock can be accumulated at lower levels and is a good long term investment for investors.

Cadila Healthcare 

Cadila Laboratories was founded in 1952 by Mr. Ramanbhai Patel and Mr. Indravadan Modi. The company has evolved over the past four decades into one of India's most well known pharmaceutical company. The company is the fifth largest pharmaceutical company in India, with INR 31.50 Billion turnover in 2012.

Firm has nine pharmaceutical production operations in India from where it develops and manufactures a large range of pharmaceuticals as well as other OTC products. The company also makes EverYuth Naturals range of OTC products like Walnut Scrub & Ultra Mild Scrub, EverYuth Peel-Off and a face wash range .It is also the maker of Sugar Free and Nutralite, which are premium consumer products.

Technically speaking, the firm is facing short term downtrend with significant support at 725 levels. Another support is apparent at Rs 690 levels, which can be good levels to accumulate the stock. Patient investors can see levels of 850 and 910 in another 6-12 months timeframe.

1 comment:

  1. Very well researched & written.. gr8 post.


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