Cipla, Lupin, Glenmark other pharma stocks stuck in narrow range after NPPA revises price of 25 drug formulations

Pharmaceutical companies’ shares were a mixed bag on Tuesday, after drug pricing regulator NPPA fixed the retail prices of 25 new formulations. Stocks such as Sun Pharma, Lupin, Biocon, Aurobindo Pharma, Pfizer and Divis Laboratories succumbed to selling pressure, whereas Cipla, Dr Reddy's, Abbott India, Natco Pharma and Ipca Lab eked out gains amid volatile trade. 

The Nifty Pharma index — whose 20 constituents include Sun Pharma, Cipla, Lupin, Divi's and Dr Reddy's — was down 0.1 per cent in late afternoon deals. The BSE Healthcare index was down 0.3 per cent.  

The pharmaceutical companies will likely issue new prices through Form-V from the date of notification and inform the entire dealership to the public. 

A majority of pharma stocks are trading at deep discounts to their historical five-year average forward multiples excluding COVID-19 era valuations, Nirmal Bang analyst Mitesh Shah pointed out. The discounts have averaged at around 25 per cent discount, he highlighted.   

FY23 has been a challenging year for the pharma sector owing to a slowdown in overall growth, margin contraction and enhanced regulatory concerns, he said.

Shah expects domestic growth in the sector to be back in double digits in the year ending March 24 as the base normalises.

"On the margin front, cost inflation is normalising, and companies have to a great extent passed on the burden of additional costs, largely in branded markets," he said. 

Sun Pharma, Torrent Pharma and Cipla are Nirmal Bang’s top picks in the large-cap space, and Eris Life, JB Chemical and Ajanta Pharma its preferred picks in the mid-cap and small-cap segments. 

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