The domestic pharma market grew much slower than expectation as Wholesale Price Index (WPI) inflation forced companies to increase prices, resulting in a decline in volumes, said Elara Securities, citing a report published by AWACS, a pharmaceuticals market research company.
While growth was expected to touch 9-11 percent, the industry grew at only 5.6 percent, missing by 340 basis points in May 2023. "Most companies, as we understand, took more than 10 percent hike in their price-controlled products portfolio and that seems to have dragged volume", the brokerage firm said.
Growth pressures
The missed estimate suggests that growth expectations built into domestic market-focused companies can disappoint by 100-200 basis points and that could trim valuation as well. "There are visible growth pressures in the market, which are leading to acquisitions at an unjustified valuation", the analysts at the brokerage firm said.
Elara Securities also said that cash generation and return on capital, crucial metrics that the pharma sector stands on, are deteriorating. Meanwhile, the US generics business is expected to improve significantly in growth rate and profitability in the coming 2-3 years and that will dictate stock prices.
While some segments in the industry are rigid, other segments are vulnerable to demand compression and trading. Diabetes, gastro, dermatology, and nutritional supplements were the worst performing among the key segments. The vaccine and oncology segment have profited the most from the price increase. The respiratory segment continues to do better than the overall market with 13.6% value growth.
At 12:06 pm, the Nifty Pharma index was trading at 12,963 points, down 0.64 percent from the previous day.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
