Sun Pharma, Lupin, Cipla others: 4 key reason why Pharma index has risen 34% ytd, outperforming benchmark Nifty-50 index

Stock Marker Today: Nifty Pharma Index that is up 34% year to date has risen around 9% in last one month outperforming the benchmark Nifty- 50 Index. The benchmark has gained slightly more than 14% year to date, is up around 1.5% in a month.

The gains have been led by strong earnings growth being witnessed by Indian Pharma companies on the back of robust US sales momentum. US growth is being led by large product launches, and lower competitive intensity in the base business. The Domestic sales growth also remains supportive. Strong performers include Sun Pharmaceuticals Industries , Lupin , Glenmark Pharmaceuticals, Dr Reddy's Laboratories, Cipla ,Zydus Lifesciences, Torrent Pharmaceuticals, Aurobindo Pharma among others, that have seen year to date gains of 20-97%.

1. Good Q1 performance boost earnings prospects

For Pharma, Q1 earnings growth of 28% YoY marginally exceeded projections said analysts at Elara Securities India Pvt Ltd

Nuvama Institutional Equities said that the pharma companies under their coverage universe turned in a strong Q1FY25 performance with cumulative revenue, , Earnings before interest tax depreciation and amortisation (Ebitda) and adjusted net profit growing 11%, 23%, 29% YoY and 5%, 16% ad 14% sequentially respectively.

2. Strong US growth propels show-

The Large product launches in the worlds' largest pharma market, the US has been propelling growth for most Indian companies, Lupin, Sun, Cipla, Dr Reddy's , Zydus , Aurobindo and many others, that reported strong traction in earnings, the same is being propelled by this geography. The large new product launches over past quarters and in the quarter gone by have helped propel not only revenue growth but margins prospect's too. The product launches have taken away focus from competitive intensity in the base business , while intensity of pricing pressure in base business also has reduced.

Elara Securities said that the US generics business remains the primary growth driver for pharma companies.

3. India Growth remains strong - Strong India business growth is supporting show of Indian Pharma Companies. While Indian Pharma market is likely to have grown around 9% yoy during Q1, the domestic formulations business for companies under Nuvama coverage grew 11.6% YoY, fastest in nine quarters. Sun Pharma, Lupin Torrent Pharma, Zydus and Glenmark among others were strong performers in domestic arena.

4.Better product mix and lower input prices support margins

The strong domestic performance and robust US show lifted overall earnings of the Pharma companies. Cumulative Ebitda margins as per analysts stood at 26.3%, driven by the strong numbers at Zydus and Lupin. Excluding these two companies also, cumulative Ebitda margin was still-strong 24.7%.

The same has led to analysts raising estimates. Nuvama has increased Forecasts for Lupin, Natco Pharma, Zydus , Glenmark while Lupin and Dr Reddy's Laboratories are top picks of Elara.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

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