US elections pose risks to pharma sector: SBICap

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Investors should stay away from pharmaceutical space, which is already reeling under US FDA issues, says Mahantesh Sabarad, Deputy VP Research, SBICap Securities.“We see a risk for the sector from the US presidential elections later this year,” he said in an interview. The entire business model of pharma companies in the US comprising of substantial filings, inspection of facilities & FDA compliance and marketing distributing strategy is threatened at present, he added.Sabarad also talked about ITC, saying that it would likely be a market performer and said there are better picks available amongst consumer-driven names. On metals, he says while the stocks have performed well over last six months, they are now peaking out.Below is the verbatim transcript of Mahantesh Sabarad’s interview with CNBC-TV18's Ekta Batra and Anuj Singhal.Ekta: First want to ask you about the top gainers in the Nifty today. Tata Motors up 6.5 percent, Tata Motors DVR up 8.7 percent. How confident were you on the numbers, on the guidance for FY17?A: Actually the results were very good and you would have noticed that what surprised the street was the Chery Jaguar Land Rover (JLR) numbers because for the entire full year the profit from their joint venture has come in about 64 million pounds and of that 49 million pound was actually shown in the fourth quarter. That was a big surprise but having said that during the analyst meet the management also sounded very confident in terms of their ongoing recovery process in China and that is something which is showing in the stock performance.Moreover, the standalone entity you would have noticed has actually reversed all its nine month losses and posted a full year profit and the momentum there seems to be better in terms of business ahead. All in all you will notice that after a long time Tata Motors on a consolidated basis is net debt zero. It is a zero debt company. Rs 52,000 crore cash on books.Anuj: The consensus short on the street and which is actually working is on Sun Pharma. Rank underperformer, at current levels do you think the risk reward is getting better or would you avoid the stock?A: We will avoid the stock. We will avoid the pharma space in general simply because we are also seeing a risk in these presidential elections in the US. We don't know what the policy direction is likely to be post the election and therefore most of the pharma companies will continue to struggle with Food and Drug Administration (FDA) issues and compliance thereof. So, Sun Pharma will be no different. While some of these companies including Sun Pharma would have their US bases or overseas bases from where they can continue to do business but we are not too sure right now of what is likely to happen post the presidential election. So, would avoid pharma space generally speaking.Ekta: But it seems maybe there could be a turnaround. We have seen US FDA nods coming in for facilities for Claris, Granules India, as well as Lupin in the past three - four days. Do you think that this would actually be a good time to accumulate pharma because they will get over the hump and then maybe FY17-18 we could see better days for them?A: No, some of these names that you just mentioned seems can potentially do well. So, Lupin for example that you mentioned has actually posted a very good set of results but then the guidance was not believed by the street. Therefore the stock underperformed because the facilities are under US FDA watch. But having said that if you look at the typical business model of a pharma company, which wants to be in the US market, it is in three compartments. One, get your substantial filings in place. Number two, get your facilities inspected and FDA compliant and number three, have a marketing arrangement or marketing distribution strategy in the US. Of all these three things what you would have noticed that the middle compartment is somewhere - the problem is getting created which is the FDA compliance on various facilities.But at the same time why we are also cautious is if you look at the first compartment which is the filings itself then there are question markets there in some of the pharma companies portfolio itself because those Abbreviated New Drug Application (ANDA) filing that they have may turn out to be dud. If you look at the last compartment which is on the marketing side and distribution strategy there is a lot of competition now that is coming in that is what we are seeing. Therefore, the price erosion has been faster and swifter than what we have seen in the past. So, business model is quite threatened.Anuj: ITC is the one which has come back after a really long time. A real laggard but this month is the largest contributor to the index gains. At current levels is there temptation to get a bit light on ITC considering the headwinds still remain or do you think it is a good buy at the current level?A: Yes, it is a hold kind of strategy here. It is not something that we would like to be overtly positive about and neither do we want to take negative stance that says you sell from the current levels. So, ITC will continue to be a sort of market performer going forward and we therefore wouldn't want to take any directional call thereof. There are better stocks to choose apart from ITC in the index right now. So, it is better that you move to some of the other consumption driven stocks.Ekta: On Hindalco, follow on buying, Rs 106 for this stock?A: No, it has had a massive rally already. In fact our call on the metal space was quite right. We took that call sometime in December-January and most of the metal stocks have performed really well in the past six months. They are now peaking out.Anuj: Any call on Jubilant FoodWorks on the way that has corrected?A: No, we don't cover the stock, so very difficult to take a call on that.