Avoid Ranbaxy after USFDA revokes approval; prefer Dr. Reddy's from the pharma space: Mayuresh Joshi

In a chat with ET Now, Mayuresh Joshi, VP, Institution, Angel Broking, shares his views on Ranbaxy. Excerpts:

ET Now: The news on Ranbaxy this morning, tentative removal of two more drugs, bad news. But what does one do with the stock when it opens negative today?

Mayuresh Joshi: Clearly, the stock will mirror. Sun Pharma will mirror what Ranbaxy will do. Clearly the impact that a lot of analysts had in terms of expectations from Nexium and Valcyte were pretty huge. Both the drugs were high operating drugs with high operating margins and probably a good decent market share probably in the US markets. Having said that in the results gone by, Absorica has shown a decent 20% growth and again, Ranbaxy was banking on these two drugs. So the negative reaction is more what is expected to come through on the stock. It would mirror down on Sun Pharma’s stock as well but clearly, our belief is that valuations in terms of both Ranbaxy and Sun Pharma have exceeded their FY16 estimates, both in terms of an earnings upgrades and again in terms of PE as well. Sun Pharma is trading at the higher end of its price earnings band. So our belief is that we would wait for significant corrections. Probably, the corrections today would not be good enough to enter the stock, both Ranbaxy and Sun Pharma and at the current juncture probably in the pharma space in the top tier names. Dr. Reddy’s is where the valuation comfort is and we believe the growth story would pan out. The results were a little bit disappointing what the street was expecting. R&D expenses were much higher for Dr. Reddy’s but clearly with the kind of pipeline that Dr. Reddy’s has got and the valuation comfort that one drives with, Dr. Reddy’s becomes our preferred pick at this point of time. Again, we would wait for significant correction from Sun Pharma with the valuations might look a tad bit more attractive to probably enter the stock. So would stay away from Ranbaxy at the current point of time.