Buy Ranbaxy, Glenmark, Piramal Healthcare: PINC

PINC Research has initiated a buy rating on Ranbaxy Laboratories, Glenmark Pharma, Piramal Healthcare and a sell rating on Sun Pharmaceutical Industries, Cipla and GlaxoSmithKline Pharmaceuticals and a hold rating on Dr Reddys Laboratories.

PINC’s report:

The increasing earnings visibility driven by mid teens growth in the core business and better visibility of cash flows from Para IV pipelines remain under appreciated by the street. Unlike their global counter parts, Indian players are more geographically diversified making them relatively less vulnerable to changes in the industry dynamics in any particular market. With most Indian companies at the end of the capex cycle, return on capital is also set to improve.

Valuations at 15x FY10E earnings are near -1x standard deviation over the last 8 years. The 30% premium to the Sensex P/E is also at -1x standard deviation over the last 8 years.

Emerging markets to drive growth, advantage India: With growth in the emerging economies exceeding that of the developed economies, generic companies are focusing more on the emerging world. Indian pharma companies are at a strategic advantage to their global peers in tapping the ‘branded’ generic markets in the emerging world due to the cost advantage and the experience of selling cheap branded generics in India. Glenmark’s foray in Brazil, Dr Reddy’s success in CIS and Ranbaxy’s success in South Africa are cases in point.

Big getting more aggressive in developed markets: Teva has a lion’s share in the US generics with a 24% market share in the TRx and aims to raise it to 31% by 2012. Teva seems to be targeting a 46% share in most of the new product launches. Even in the EU, Teva aims to increase market share from the current 15% to 25% by 2012 indicating >50% share in the growth. With Mylan having acquired Merck generics and Sandoz with considerable size, we believe the big players will get more aggressive in the US and EU.

We initiate coverage on Sun Pharma, Cipla and GSK India with a SELL rating; Ranbaxy, Glenmark and Piramal Healthcare with a BUY rating and Dr Reddy’s with a HOLD rating.

Tags: Cipla, GlaxoSmithKline Pharmaceuticals, Glenmark Pharma, pinc, Piramal Healthcare, Ranbaxy Laboratories, Sun Pharmaceutical Industries

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