Alpha Ideas

Attended the Reliance Pharma Conference Call where Sailesh Bhan, Fund Manager of Reliance Pharma Fund spoke on the Sector Outlook.

Key takeaways :

• Pharma Sector consists of two plays-India domestics & US Generic Exports
• India Domestics consists of India Generics,Diagnostics,Hospitals etc
• Sees growth in India Domestics as fairly robust…can grow 15% p.a on a value basis
• GST will impact India Domestics over a 2/3 Quarter Period
• Doctors prescribing Generic Names vis-a-vis Brands may impact India Domestics but it is too early to tell the exact impact
• The other category are companies whose sales are 60-65% US Generic market
• Their sales and earnings have been badly hit due to three reasons
  • Very competitive pricing in US generic markets
  • FDA regulatory issues on their manufacturing plants
  • Lack of new launches due to point # 2
• It will take at least 18-24 months for earnings to recover for these companies
• These companies are using their super profits of the past to invest in R&D…some companies have 8-10% of sales invested in R&D
• Valuations of the Sector have corrected significantly and the market is pricing in zero earnings growth
• This sector is one of the most competitive sector out of India with exports to more than 100 countries and as such has a lot of promise
• One may look at this sector from a 2/3 year horizon and do a SIP