Its a new year and a economically promising one at that.However, the stock markets have been playing a see-saw ride for sometime now with no major fluctuations.Sectoral Investing has lost its flavour for sometime now but analysing a particular sector still helps one shortlist the stocks to invest in.Recently, we had covered a discussion on the IT Sector’s position in the Stock Market.One other sector that looks set for some real action is the HealthCare sector.
The Health Care sector picked up some real peace during the last year after March where the BSE HealthCare dropped to its maximum low(CY 09) and from then on, it has been only an uphill journey.A look at the charts of the BSE Healthcare index is a good indicator of the good run the Healthcare based stocks have had in the Indian Stock Markets.
The BSE healthcare index comprises of 21 company stocks from the pharmaceutical and the health services sector.Some real noteworthy stocks like Biocon,Sun Pharma,Apollo hospital comprise the list and have all been doing rather good on the business front.Infact, Biocon recently reported its quarterly results and its third quarter net profit almost tripled from a year earlier.The expectations are great from the sector and with a lot of investments going into R&D, the Indian Pharma companies must be betting on reaping the rewards in the form of new product launches.
Indian healthcare Companies have a clear advantage with their low cost business model.With government’s increased focus on health insurance and penetration in the rural sector, the pharmaceutical product demand in the domestic sector looks set for a rise.
But, the picture is not as bright as it looks.The biggest thorn in the growth of Indian Pharmaceutical industry is the access to foreign markets.There have been many incidents when Indian drug makers like Ranbaxy have taken a big hit being banned by the US Food & Drug Administration. The quality standards for the Indian Pharma companies have under some serious scrutiny for sometime and this deters the pharma companies access to foreign markets.
However, things are changing for better even on this front.The year has already borne some real positive news for the pharmaceutical industry as far as the international access is concerned. Lupin Pharma has settled issues with the US FDA and looks set to enter the market there.Even on a generic front, Indian Pharmaceutical companies might see a increased demand from its close neighbour.China has hinted at opening up the market for Indian pharmaceutical companies.
Things sure look bright for the Indian healthcare sector.Impressive earnings coupled with a promising growth both in the domestic and international markets seem suggestive of a good showing by the major healthcare players.However, the companies will have to be stringent on quality and ensure that the R&D investments don’t go overboard.
What are your thoughts on the Indian Healthcare Sector? Do you think it will be able to maintain the steam it picked in the later part of the Year 2009?
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{ 8 comments… read them below or add one }
(Ankit, Arun – it’s good to see a post on Pharma…something outside IT and telecom. Keep up the good work.)
I think there is a lot of headroom for our generic giants. Each one is trying to get a big marketshare in different developed and developing nations. While the developed nations have challenges of healthcare/ social security costs due to branded medication, the developing countries want cheaper medicine simply because they have to pay from their pockets. Both scenarios present an opportunity for the generic medicine companies.
Due to the patent consciousness and quality control within Indian pharma they are getting wider credibility. One odd FDA case should not be a deterrant to invest in them. R&D in a Pharma company is key and I doubt that Indian companies can or will overdo it any time soon. Obviously the ROI is higher on a inhouse drug compared to a generic, for this reason alone it cannot go out of fashion.
Good corporate governance and management focus like Sun Pharma’s Dilip Sanghvi has displayed despite sitting on a cash pile of Rs.3500 (close to $1bn) (and not just go on expanding organically or inorganically) is quite commendable. They are focussed on earning good ROI for the shareholders – Mr.Sanghvi has said “We are not a topline-driven company and what matters to us is the value we create for our shareholders†. Source:
http://www.business-standard.com/india/news//wenottopline-driven-company//374664/
PS: I own shares in Sun Pharma.
he he, i can understand that there has been a little overdose of telecom but i am sure there’s no specific reason for that :-)
I have been watching the pharma sector for sometime now and wanted to write bout it.With Biocon’s super fundoo results, i thought i had a little case to make and hence could put down my thoughts.
As for the R&D investment, in overdoing i meant , overdoing it witout keeping a check on the ROI.Yes, inhouse drugs could be the biggest cash cow but indian pharmas are getting sizable revenues from generics.With access to international markets and R&D investments transforming into products, the future sure looks bright.
However, FDA issues even one off could prove fatal.Dont have to the data to justify but imagine a drug that comes out after billions of $ investment and FDA bans the damn thing.This uncertanity is which makes a lil jittery to invest in the pharma sector.There s a lot riding on the fructification of the R&D investments for which the gestation period is a little too high for my taste:-)
*Makes a note to watch SUN Pharma* :-)
Ankit,
The R&D cost to bring a medicine to market is supposedly $25 Mn and not billions. Your concerns can be understood if you consider early stage life sciences companies like Suven who focus is more on R&D as their funds are tied up in one or two drug discovery and development process; this case however is different for mid to large size companies.
Regarding your fear about FDA banning certain drugs after approving them, I don’t this is the case especially with Indian companies these days; I think that the case is one of the manufacturing facilities being quizzed or production and sales paused until some quality issues are cleared. I think this is not fatal to the product or the company unless the firm doesn’t have enough resources to last through the issue resolution period.
My 2 cents.
I think the pharma and healthcare sector has high stability, but not growth. I’ve heard some people also tell that the sector is getting saturated. I don’t know much about it, this is what I think.
@vishal Dude, seriously it is beyond me why you always have to go against the tide without any reasoning in place.I wonder if u even read the post completely.The graph clearly shows that Pharma has seen nothing but growth in the later part of the last year.. Fro levels close to 2.9k to a high of ~5k all i see is a growth.Stability is when u see a straight line.
In the past one year every core industry has been showing similar stats, this is because last year was a crucial year of economic recovery, I’m sure that the pharma sector this year will have a straight line. Sectors like pharma and education have no serious growth, even if it does it cannot have a big impact on the stock market.
Looks like we have a prediction for the year! I don’t think any one sector can make or break the performance of the stock market though they can be of the many reasons for the shining or poor show.
Though I am betting on education for the long term (greater than 3-5yrs) and I want to be proven right even in the short term(this yr).
Regarding pharma, I think people will invest in that as it is a defensive sector and the mkt will probablyove sideways for some more time.
Maybe impacting the stock market…. But what about customer satisdfaction????Check this out…. http://bit.ly/an30bL