IIFL gung-ho on pharma, expects Sun to beat Q4 estimates

Bino Pathiparampil, vice president (research), IIFL believes Sun Pharma will continue on its eight quarter long stellar run of beating street estimates in Q4 as well.

Pathiparampil, who is overweight on pharma sector, expect the sector to outperform the broader markets. “Ranbaxy's business has been worsening over the last 2-3 quarters and one can't expect major improvement to happen in their base business,” he told CNBC-TV18. Below is the edited transcript of his interview to CNBC-TV18. Q: What is your call on Sun Pharma, the stock is making life highs almost on a daily basis?
A: Sun Pharma has run up quite a bit, but at the same time we have seen significant earnings upgrades for the stock. In last eight quarters, the company has beaten estimates by 10-20 percent in every single quarter. So going forward expectations remains the same. The stock has already achieved the set price target so I would wait for the quarter numbers before entering into this stock. Q: Wockhardt is the seminal rise, while Sun Pharma stuns with its consistent performance, Wockhardt stuns even with the scotching pace at which it has been rising. It did give a buy opportunity by dipping about 2-3 days back. What is your call from hereon?
A: Over last two years, Wockhardt has been able to overcome some major issues related to forex derivatives and poor performance in some businesses in Europe etc. the company has performed exceedingly well in the US and the same performance is likely to continue.
The recent FDA scare is totally unwarranted. In the near term even if a warning letter is issued on the facility that will not stop them from doing business. Only new approval will not come for sometime. But it will not impact the continuing performance of the company. The stock is still at 12-14 times one year forward verses 18-25 times of peers. The stock can provide good returns.      Q: You have a sell recommendation on Ranbaxy. This stock has clearly been rank underperformer if one looks at one year chart, falling from Rs 600 all the way down to Rs 400 odd, Rs 450 now. What’s the call here?
A: Ranbaxy's business has been worsening over the last 2-3 quarters. We don’t expect major improvement to happen in the base business.
There could be couple of positive triggers that could come through in terms of potential approval and launch of Diovan Generic in the US or some positive news related to resolution of the FDA issues. But I don’t think none of these will change the base earnings picture of the company in the near-term.
The stock continues to remain expensive even after the underperformance. So, apart from minor trading opportunities, which are news-related, I don’t see a secular upside in this stock even at these levels. Q: What is your expectation or focus on pharma as a sector itself? Defensives played very well for the past two years. Do you think this year around you will stick even more to defensives given the kind of global slowdown news that we are getting, as a sector is the approach very positive for IIFL?
A: We are overweight on the pharma sector. We expect this sector to performance better this year as well. Going forward, beyond this year I don't expect the same performance from the sector that we saw over the last 2-3 years, which was phenomenally good because that kind of the base is getting larger.
There could be some moderation in growth rates in the US as we pass the patent cliff etc. But still for this year definitely, the sector will outperform the broader markets. Going forward also, it will continue to give returns although at a slightly moderated pace.