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Stocks Corner: 4 must-buy pharma stocks

Last updated on: April 1, 2013 15:27 IST

Stocks Corner: 4 must-buy pharma stocks

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Narendra Lokwani

We asked readers to mail their queries about stocks they want to buy, sell or hold. Here's the response to their queries.

Narendar Lokwani of StockFundoo advises about good, bad and ugly stocks.

You can mail your queries to stockfundoo@rediffmail.com.

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 dug 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 114th 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 per cent and some of the best Indian companies in this sector are Dr Reddy's, Ranbaxy, Sun Pharmaceutical and Cadila Healthcare among others.

Dr Reddy's 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 crore in 2008 to over 6700 crore 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 per cent dividend in year 2012. Return on Equity (RoE) for the firm stands at 13.5 per cent 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.

Disclaimer: This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products /investment products mentioned in this article or an attempt to influence the opinion or behavior of the investors /recipients.

Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

www.StockFundooLiveCalls.com provides insightful and in-depth intra-day trading support to traders.Our trading calls are backed by robust technical analysis to help you learn the ways of the capital markets. 


Image: Price movement of Dr Reddy's Laboratories from May 2012
Photographs: Rediff MoneyWiz
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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 crore in 2008 to Rs 6303 crore in year ending 2012. Foreign promoters have significant shareholding of 63.54 per cent and retail shareholding is less than 9.9 per cent, which is a positive for the stock. United States is the biggest market for Ranbaxy, accounting for 28 per cent of Ranbaxy's sales with all overseas markets accounting for over 75 per cent of global sales.

Technically speaking, Ranbaxy has seen high levels of Rs 575 in recent past, and currently the stock has support levels at Rs 400. This support is unlikely to break. Investors can accumulate for higher levels of Rs 470 and Rs 540 in next 6 to12-month duration.


Image: Price movement of Ranbaxy Labs from April 2012
Photographs: Rediff MoneyWiz
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Sun Pharmaceutical

Sun Pharma was established by 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 per cent 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 capitalisation (over Rs 85,000 crore) on the Indian exchanges.

If you had invested Rs 1 lakh in Sun Pharma stock in 2003, you would be holding stock worth more than Rs 30 lakh today! The stock has grown exponentially and explosively over the last 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. The stock can be accumulated at lower levels and is a good long term investment for investors.


Image: Price movement of Sun Pharmaceutical from April 2012
Photographs: Rediff MoneyWiz
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Cadila Healthcare

Cadila Laboratories was founded in 1952 by Ramanbhai Patel and 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 Rs 31.5 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 product Nutralite, all premium consumer products.

Technically speaking, the firm is facing short-term downtrend with significant support at Rs 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 Rs 850 and Rs 910 in another 6 to12-month timeframe.

Do send in your stock investing and trading related queries at stockfundoo@rediffmail.com


Image: Price movement of Cadila Healthcare from May 2012
Photographs: Rediff MoneyWiz
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