Is it the right time to enter pharma stocks?

The pharma sector has seen the biggest correction over the past one month. The index itself has seen a 5 percent fall from the top. Abhishek Sharma, a pharma analyst at IIFL, gave his views on Dr Reddy's, Glenmark, Cipla and Sun Pharma.Dr Reddy's LaboratoriesBasically, Dr Reddy's Laboartories has got rerated in the last couple of months that we saw. It was hovering around Rs 3,200-3,300 and then suddenly shot up. There was not too much in terms of earnings visibility which improved but the stock just rerated because I guess people started believing more in the story that the regulatory action etc, which is around a company is of much less severity as compared to other names. Having said that, I think things are where they are, the Srikakulam asset is still not out of the USFDA regulatory scrutiny, they haven’t got an all clear yet. As a result some of the rerating or some of the upmove has kind of corrected in the meantime.""I like the stock, I think they have one of the best pipelines of complex generic products in the industry. In terms of regulatory intricacy, I believe that Srikakulam should hopefully come out of its trouble soon, which will essentially give the company some fillip in terms of new approvals coming through. The only thing is the Venezuela risk on the company which remains and it has about USD 135 million of annual revenue exposure in that market. In the event of Venezuela currency depreciation, some of that revenue would essentially devalue. That is the only risk I see on the stock from my perspective. I have an add rating on the company. My target price was around Rs 4,100. Glenmark Pharma also has a similar exposure in Venezuela proportionate to their revenue numbers. So that risk is there for Glenmark as well," he said.CiplaI think the acquisition needs to be looked at in a separate manner as compared to the ones that they have done earlier. The earlier ones were essentially trying to own the frontend in the markets that they were already in as suppliers for the same products. In this particular case, they have essentially bought a company, which has got a portfolio of products in the US, about USD 200-225 million in revenues. So that is a big move for Cipla because in the US till now primarily it was producing products for its partner and that is a business that is going to continue. In terms of what it adds to Cipla, I think it is a decent acquisition. There is a manufacturing facility in New York which is a nice addition from a derisking perspective. The business is primarily an independent standalone kind of a business.""Cipla already has a management in the US, so essentially they can takeover that business and run with it. The only dependency, I presume would be for bulk drugs supply from the parent of the seller, which is Hetero. Apart from that, I think it is a decent acquisition. The only thing is that we need to see what kind of regulatory track record the facility had in the past, otherwise I think it is a decent acquisition."Sun Pharma"My view around February-March was that the regulatory intensity is now reducing and some of the actions which happened within the Indian companies around September-October last year about issuances of 483 observation letters etc, we are nearing some of that conclusion. Unfortunately none of that has come through not for Halol facility for Sun Pharma, not for Srikakulam Dr Reddy’s. So it has taken a much longer period as compared to what I anticipated and I presumed what the street anticipated. In Sun Pharma’s case the impact is particularly severe, this is a key facility not only in terms of present products which go through but also in terms of the future filings. That is one event which is keeping this stock down. There are concerns around Halol, they get discussed on every earnings call and that is the number one concern that comes out. Till the street starts seeing some move towards completion of remediation, the stock is or the market as a whole would remain concerned about where Halol is going."