Citi picks top pharma stocks; positive on Ranbaxy, Lupin

A deteriorating investment climate has not really favoured the investors and many of them have found a defensive bet in pharma stocks. The sector as a whole has been performing well.

In an interview with CNBC-TV18, Prashant Nair, Director & Deputy Head of Research, Citi India gives his outlook on the pharma sector. He picks Ranbaxy, Lupin, Apollo Hospital and Ipca as preferred stocks and believes, they will outperform not just the market but also its peers from the pharma space. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: Just give us a sense of the Q4 results in terms of the pharma and healthcare space? How did you think it panned out?
A: We were happy with Q4 results for the sector by and large. I think from a business standpoint everything seems to be on track. Obviously, it's a different reason that expectations are already very high.
So stocks need to beat those expectations in order to perform, which has not happened. But from a business point of view, things have been very strong. Q: And which stocks would you see maximum upside from on current valuations? Because of the defensive space there would be investor interest at this point. Which ones would you be buying at this point?
A: Our top picks are Ranbaxy and Lupin among the larger names followed by Apollo Hospital and Ipca among the midcap space. These stocks we believe will probably outperform not just the market but their peers in the pharma sector as well. Q: A lot was spoken about Ranbaxy despite the Lipitor boost that they got. How would you be placed on Ranbaxy?
A: We are positive on Ranbaxy. In fact we are probably contrarian on the name. We think that it is very difficult at this point to distinguish between the base business and the upside coming from exclusivities.
You also have a lot of foreign currency gains or losses every quarter due to fluctuations in currency. But based on some assumptions, our sense is that the base business is doing much better than it was a year back.
It is obviously difficult to time the improvement on a quarter to quarter basis because it's a turnaround case. Our sense is that there are more things that can go right from here than wrong for Ranbaxy's business. Q: How would you be placed on Dr. Reddy's and Glenmark?
A: Yes we are positively inclined on both names. Dr. Reddy's probably has one of the strongest US pipelines. If you look at their growth rates over the last couple of years, they have grown much faster in the US than most companies.
We expect this to continue for the next year, year and half beyond when the US businesses would become more important, given that US as a market could slowdown post fiscal 2014.
 
Glenmark, we have liked the stock. It's a company where the US business has done well. What is key for Glenmark is whether they are able to sustain the growth momentum in emerging markets or not. It is the here that they need to gain critical scale. If they are able to do that then I think the business is in good shape.