Pharmaceutical giant Sun Pharma likely to take huge stride

In a recent media interaction, Dilip Shanghvi, promoter of the country’s largest pharma company, Sun Pharma, said that India has been increasingly becoming an important source for pharmaceutical products. In another interaction with top B-school students, he said in the next 10 years, at least three Indian pharma companies will become global players with innovative drugs in all the markets. While valuations — price-to-earnings multiple of some of the pharma companies may appear expensive, optimists would focus on the earnings growth estimate of the top 10 for the next two years. (See table)


The pharma index has outperformed most other cyclical sector indices and the CNX Pharma index has gained 73% in the past year against 29% gains of the CNX Nifty. Companies mentioned in the table have been consistently meeting their earnings expectations and chances are they would continue to do so over the next few years. According to Bloomberg data, earnings estimates of these top 10 companies are likely to grow in the range of 17% to 68% CAGR over the next two years, and are available at FY17 earnings multiple of 15 to 26. Amid uncertainty over capex and loan growth taking off and the valuation and earnings mismatch of several cyclical companies, it would not come as a surprise if investors prefer pharma stocks.