Stocks to Buy - Pharma Sector

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Introduction

The stock market is a dynamic entity with sectors that periodically come into focus. Today, we delve into the pharmaceutical sector, identifying stocks to buy. With a mix of technical analysis and fundamental insights, Bajaj Broking’s Research Desk has come up with a comprehensive overview of the top picks in the pharma sector.

Why Pharma Stocks?

The pharmaceutical sector is on an upward trajectory, driven by robust domestic demand and international acclaim for Indian pharmaceuticals. Known as the 'Pharmacy of the World,' India's pharma industry is poised for significant growth. This blog highlights key stocks in this sector that offer promising returns.

Technical and Fundamental Overview

Nifty Pharma: Range Breakout

The Nifty Pharma index has recently broken out of a four-month range, indicating a resumption of its upward trend. This breakout provides a fresh entry opportunity for investors looking to capitalize on the momentum.

Bajaj Broking’s Research Desk anticipates the index to rise towards the 23,900 level, matching the price parity of the previous rally (14,544-19,397) as projected from the recent trough of 17,904.

Fundamental Outlook

India has solidified its position as a global centre for medical tourism, offering affordable treatments with cutting-edge technology, driven by numerous groundbreaking reforms and provisions. Indian medicines, known for their low cost and high quality, are favored worldwide, earning the country the title of the 'Pharmacy of the World.’ The domestic pharmaceutical industry is projected to reach US$ 57 billion by FY25, with an expected increase in operating margins of 100-150 basis points (bps).

  • Global centre for medical tourism with affordable, high-tech treatments.
  • Indian medicines are favored worldwide for low cost and high quality.
  • Domestic pharmaceutical industry is projected to reach US$ 57 billion by FY25.
  • Expected increase in operating margins by 100-150 basis points (bps).

Stocks to Buy

1. Sun Pharma

Market Cap: ₹3,76,036 Cr

Sun Pharma is a leader in the domestic pharmaceutical market, driven by volume growth and new product launches. The company is expected to see significant gains due to its strategic moves and strong market presence.

Recommendation:

  • Buy Range: 1530-1565
  • Target: 1790
  • Stop Loss: 1397
  • Upside: 15%
  • Time Frame: 180 days

Technical Outlook:

  • Resuming uptrend after 3-month base formation
  • Moved above-falling trendline resistance, indicating strength
  • Horizontal trendline breakout, offering fresh entry opportunity
  • Expected to head towards 1790 levels in coming months (161.8% external retracement of previous breather 1638-1377)

Fundamental Outlook:

Taro Merger to Strengthen Balance Sheet:

  • Significant player in the generic dermatology market despite US challenges.
  • Post-merger, the combined entity will leverage global strengths to better serve patients and healthcare professionals.
  • FY24 sales increased by 10% YoY to $629 million; operating profit rose by 21% YoY to $21.48 million.
  • Substantial cash and cash equivalents of $1.4 billion for inorganic expansion.

Domestic Business Leadership:

  • Growth driven by increased volume and new product launches.
  • Introduced nine new products in Q4FY24, with strong momentum in in-licensed products.
  • Plans to manufacture most products in-house to optimize costs.
  • Domestic sales are expected to grow at or above the Indian Pharmaceutical Market (IPM) rate, especially in the chronic segment.

2. Granules India

Market Cap: ₹12,604 Cr

Granules India is transitioning to value-added products, which is driving margins and growth. The company's focus on complex products in regulated markets is set to spur future growth.

Recommendation:

  • Buy Range: 505-527
  • Target: 620
  • Stop Loss: 447
  • Upside: 20%
  • Time Frame: 180 days

Technical Outlook:

  • Granules India is in a strong uptrend, forming higher highs and higher lows across all time frames.
  • Generated a breakout above the last 3 years' bullish Cup & Handle formation, signaling continued upward movement and a fresh entry opportunity.
  • Expected to head towards 620 levels in the coming quarters, based on the bullish Cup & Handle breakout.

Fundamental Outlook:

Focus on Value-Added Products:

  • In FY24, value-added formulations accounted for 65% of Granules' sales, up from 50% in FY23.
  • Increase driven by better product mix and stable pricing in the formulations segment.
  • Transitioning product mix from traditional products (Paracetamol, Metformin, Ibuprofen, Guaifenesin, Methocarbamol) to new value-added products.

Launch of Complex Products to Spur Growth:

  • Reporting robust growth in the US, driven by volume increases in core products.
  • Launched 35-36 ANDAs, primarily in the US, increasing revenue share from US/European markets from 57% in FY23 to 66% in FY24.
  • Plans to boost revenue from regulated markets by filing for complex products and focusing on enzyme and fermentation technology.
  • Anticipates launching complex products in oncology within the regulated market, supporting overall growth in the next 12-15 months.

Share Market Live Updates

The Sensex after surpassing lifetime highs earlier this week fell by 0.26% to 79,842.21 as of 12:30 PM. The Nifty 50 also saw marginal correction to 24,279.75 as of 12:30 PM on Friday, 5th July. Bank Nifty saw the biggest correction today among indices as it fell by 1% to 52,591.65, driven primarily by HDFC Bank’s 4.4% decline.

Conclusion

Investing in the right stocks requires careful analysis and a keen eye on market trends. Bajaj Broking’s Research Desk helps you with in-depth technical and fundamental analysis of stocks, sectors, trends, and much more. They have identified the pharma sector’s stocks to buy in their latest analysis. Stay tuned for further updates. To stay updated with the markets regularly follow Bajaj Broking’s podcast 

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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