In Pharma, Lupin and Cadila are our top picks at CMP

Generic Pharma Sector

Differentiating the best from the rest

The generic pharma industry has evolved and grown over the years to become a US$87bn market, with the potential of touching US$135bn by 2013. However, with time, the growth opportunities have shifted from being solely US centric to a global one as economies around the globe are increasingly favoring generics. Too much of focus and dependence on any single market is turning out to be a risky proposition. We believe that generic players have to be dynamic in their approach if they want to fully capitalize on the growth opportunities that the sector offers. We have identified four parameters, which will enable them to tackle the diverse issues across geographies and emerge as strong players in the generic space. They are - a) Geographically well diversified business, b) Dominance in a niche segment, c) Healthy Para IV pipeline and d) Lean cost structure. We believe that these parameters will ensure that a generic player is able to capitalize on the opportunities available across regions and also grow profitably in the highly competitive generic space.

We have assessed the companies in our universe on each of these parameters and assigned scores accordingly. Sun Pharma and DRL emerge as the highest generic scorers with a score of 17 each, while Cadila and Cipla rank lowest with a generic score of 12 each. We have rated the companies on the basis of their generic score, earnings growth and valuations. As a result, we have rated Sun Pharma and Ranbaxy as a Hold and Sell respectively, despite them scoring high on our generic scorecard owing to expensive valuations. Similarly, Lupin and Cadila are our top picks despite lower generic scores on account of the immense upside potential (34% and 22%) that they offer from current levels. Lupin, DRL and Cadila are our top picks. We initiate coverage on Cipla with an Accumulate rating, Sun Pharma with a Hold rating and Ranbaxy with a Sell rating. We have a positive bias on all these stocks and will upgrade our ratings on Cipla, Sun Pharma and Ranbaxy, subject to materialization of the positive triggers that we have anticipated for each of them.

Reco	Company	CMP (Rs)	TP (Rs)
BUY	Cadila Healthcare Ltd.	787	962
ACCUMULATE	Cipla Ltd.	314	366
BUY	Dr Reddy's Laboratories Ltd.	1,168	1,478
BUY	Lupin Ltd.	1,585	2,111
SELL	Ranbaxy Laboratories Ltd.	453	329
HOLD	Sun Pharma Industries Ltd.	1,655	1,644

 

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