Active Stocks
Sat Mar 02 2024 12:49:58
  1. Tata Steel share price
  2. 155.15 3.43%
  1. HDFC Bank share price
  2. 1,430.35 -0.06%
  1. State Bank Of India share price
  2. 773.05 0.49%
  1. Tata Motors share price
  2. 988.40 1.15%
  1. Wipro share price
  2. 522.65 0.67%
Business News/ Markets / Mark To Market/  Why pharmaceutical MNC stocks are beating their Indian peers hands down
BackBack

Why pharmaceutical MNC stocks are beating their Indian peers hands down

Pharma MNCs are riding on innovation and are operating in niche therapies where there is less competition
  • US FDA inspections leading to cancellation of some drug launches in the US market has now impacted most Indian companies
  • An index comprising of seven MNC pharma companies delivered returns of 9.3% since April this year. (Photo: Bloomberg)Premium
    An index comprising of seven MNC pharma companies delivered returns of 9.3% since April this year. (Photo: Bloomberg)

    Mumbai: Stocks of multinational pharmaceutical companies have outclassed their Indian peers this year, and chances are they could continue to maintain their edge in the near future. An index comprising of seven MNC pharma companies delivered returns of 9.3% since April this year as compared to a drop of 13% drop in a set of 20 Indian pharma stocks, data compiled by Mint Research shows. That results in an outperformance of as over 25%.

    A combination of high domestic growth and better products in the domestic market are some of the key drivers for MNC pharma stocks.

    "MNC pharma companies focus on a few brand products and enjoy premium pricing on these products as they are restricted to the top-end of the market. They also are 100% focused on the India market where there is less regulatory risk and on growing fewer premium brands in the domestic market. Whereas Indian pharmaceutical companies have about 30% of their revenue coming from the domestic market, and the rest is from overseas businesses. This exposes them to regulatory, currency and geopolitical risks which has an impact on their performance," says Krishnanath Munde, senior analyst, Reliance Securities Ltd.

    No doubt, overseas exposure did boost the prospects of Indian pharmaceutical companies a few years ago, but US FDA inspections leading to cancellation of some drug launches in the US market has now impacted most Indian companies.

    MNC pharma companies, on the other hand, are riding on the innovation done by their parent companies and are operating in niches and therapies where there is less competition. This gives them an edge in the domestic market. "Some MNC pharma companies are into chronic therapies, which can persist for life, which is why MNCs command a valuation premium too," notes Munde.

    Besides, these companies have traditionally had negligible debt on their balance sheets and better dividend payouts.

    A drawback is that many of these MNC companies are not highly liquid or heavily traded, which results in a higher impact cost for investors who want to take large positions. As their stock prices have also run up significantly, some of these stocks are beginning to quote at astronomical valuations.

    Astra Zeneca, for instance, quotes at a price-earnings multiple of 74 times trailing twelve- month earnings. Correspondingly, most Indian pharma companies quote at lower than 20 times earnings on the bourses. Hence, given the run up in MNC pharma companies and some lofty valuations, a health check-up of these stocks may do no harm.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 18 Sep 2019, 12:14 PM IST
    Next Story footLogo
    Recommended For You
    GENIE RECOMMENDS

    Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

    Let’s get started
    Switch to the Mint app for fast and personalized news - Get App

    Chat with MintGenie