Nifty Pharma Index Surges 34% YTD, Outperforms Nifty-50 with Strong US Sales Growth
The Nifty Pharma Index has been a standout performer in the Indian stock market this year, rising by an impressive 34% year-to-date. Over the last month alone, the index has surged by around 9%, substantially outpacing the benchmark Nifty-50 Index, which has gained just over 14% year to date and around 1.5% in the past month.
This extraordinary performance is driven by strong profitability growth among Indian pharmaceutical companies, bolstered by robust sales momentum in the US market. The growth in the US is being propelled by significant product introductions and reduced competitive intensity in the fundamental business, contributing to the sector’s overall success. Domestic sales growth has also been supportive, further bolstering the industry’s performance.
Leading the assault are companies like Sun Pharmaceuticals Industries, Lupin, Glenmark Pharmaceuticals, Dr. Reddy’s Laboratories, Cipla, Zydus Lifesciences, Torrent Pharmaceuticals, and Aurobindo Pharma. These firms have seen year-to-date gains extending from 20% to as much as 97%, demonstrating their strong market position.
Strong Q1 Earnings Boost the pharmacy sector.
Pharma companies delivered a robust performance in Q1 FY25, with earnings growth marginally exceeding analysts’ projections. According to Elara Securities India Pvt Ltd, the sector’s Q1 earnings grew by 28% year-on-year (YoY), marginally surpassing expectations.
Nuvama Institutional Equities reported that companies under their coverage achieved robust Q1 FY25 results, with cumulative revenue, EBITDA, and adjusted net profit growing by 11%, 23%, and 29% YoY, respectively. Sequential growth was also extraordinary, with revenue, EBITDA, and net profit rising by 5%, 16%, and 14%, respectively.
US Market Drives Growth
The US market, the world’s greatest pharma market, has been a vital development catalyst for Indian pharma companies. Significant product introductions in this market have not only propelled revenue growth but also improved margins. Companies like Lupin, Sun Pharma, Cipla, Dr. Reddy’s, Zydus, and Aurobindo have reported robust earnings traction from the US, with reduced pricing pressure and competitive intensity in the base business further enhancing their performance.
Elara Securities highlighted that the US generics business remains the primary growth driver for pharma companies, with new product introductions continuing to fuel their success.
Strong Domestic Growth Supports the pharma sector.
In addition to their US success, Indian pharma companies have benefited from robust domestic growth. The Indian pharma market is estimated to have grown around 9% YoY during Q1, with the domestic formulations business under Nuvama’s jurisdiction expanding by 11.6% YoY, signifying the highest growth in nine quarters. Sun Pharma, Lupin, Torrent Pharma, Zydus, and Glenmark were notable performers in the domestic market.
Margins Supported by Better Product Mix and Lower Input Prices
The strong domestic and US performances have lifted overall earnings for pharma companies, with cumulative EBITDA margins standing at 26.3%, propelled by the robust figures from Zydus and Lupin. Even excluding these two enterprises, the cumulative EBITDA margin remained robust at 24.7%.
As a consequence, analysts have raised their estimates for several companies, including Lupin, Natco Pharma, Zydus, and Glenmark. Top candidates from analysts at Elara Securities include Lupin and Dr. Reddy’s Laboratories, indicating sustained optimism for the sector’s future development.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice. The performance of stocks and indices mentioned herein is subject to market risks, and past performance is not indicative of future results. Investors are advised to conduct their own research or consult with a qualified financial advisor before making any investment decisions. The views expressed by analysts or institutions are their own and do not necessarily reflect the views of this publication
Also read: Nykaa vs. Mamaearth: Which E-commerce Stock is a Better Long-Term Bet?
