Though the global pharmaceutical industry is developing at a very fast pace, it is heavily influenced by cost pressures, economic and political fluidity, healthcare reforms, public demand for lower cost treatment, increased scrutiny and changing regulatory issues, among others. With a compounded growth of over 4%, the global pharmaceutical market is currently estimated at around USD 1.3 trillion. Increasing urbanisation with a growing middle class population and affordable drugs are spurring demand for the pharmaceutical industry. Advancement in science and technology has also promoted the industry into a whole new area of medicine development, and new research methods are turning innovative treatments more accessible to patients. Overall, Indian pharma companies concluded the June quarter on a positive note on account of better showing in the US market. Many analysts tracking the pharma sector has pointed that lower spending in R&D have also contributed to lower expenses and thus better results. US is the biggest market for most pharma firms and the industry has been reeling under the regulatory overhang from the US drug regulator—the US Food & Drug Administration (USFDA). Indian pharmaceutical companies will have to do a couple of things to improve their bottom line such as obtain quick regulatory approvals, correct pre observation filing with facility compliance as per regulatory standards and increase R&D spending.

IPCA Lab has done well among other Indian pharmaceutical companies for us to merit a strong stock buy recommendation. IPCA Laboratories Ltd is a fully-integrated pharmaceutical company manufacturing over 350 formulations and 80 APIs for various therapeutic segments. It is one of the world’s largest manufacturers and suppliers of over a dozen APIs. These are produced right from the basic stage at manufacturing facilities inspected by the world’s most discerning drug regulatory authorities like US-FDA, UK-MHRA, EDQM-Europe, WHO-Geneva and many more. It is a therapy leader for anti malarial pharmaceutical products with a market-share of over 34% in the country with a fast expanding presence in the international market as well. IPCA is also a leading producer of DMARDs (Disease Modifying Anti-Rheumatic Drugs) which are used for the treatment of rheumatoid arthritis. The company reported strong performance during the first quarter of FY 2020, with sales growing 23% y-o-y to Rs 1,078 crore while profit grew 88% y-o-y to Rs 129.4 crore. There was strong growth seen across domestic and export businesses for both the formulation and API segments, driving the quarterly performance above estimates. The company has recently acquired a pharmaceutical company Ramdev Chemicals for Rs 108.5 crore and this acquisition would help it grow its API business by adding new molecules for its products. Most analysts and fund managers are bullish on the IPCA stock as they expect most of the earlier headwinds to be behind which impacted its business performance last year. They expect the company to post strong sales/profit CAGR of 15%/25% over the next two-three years. The IPCA Lab stock, currently quoting at Rs 935, is down by only 10% from its 52-week high of Rs 1,040 and can appreciate by around 14% in the next six months.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

 

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