Glenmark, Aurobindo should be part of core portfolio: Ajay Bodke

In a chat with ET Now, Ajay Bodke, Head - Investment Strategist & Advisory, Prabhudas Lilladher, shares his view on his top picks in the pharmaceutical sector.

ET Now: The earning season has continued to disappoint. Just when we were thinking that pharma companies would do well, pharma majors such as Sun Pharma, Cipla and Ipca Laboratories came out with sub-par numbers. Sun Pharma was in fact the real shocker. One cannot expect them (pharma cos) to miss their guidance by such a margins, that they did.

Ajay Bodke: True. The numbers plotted out by some of the pharma majors have been a tad disappointing. That has to be seen in the context of the market having already discounted a rosy projection. Pharma stocks are trading at extremely high valuations and, thus, could especially be vulnerable to any disappointment.

In the pharmaceutical sector, our top picks for sometime have been Glenmark Pharmaceuticals and Aurobindo Pharma. Both of these drug makers have posted numbers which are in line or better than market expectations. We would advice investors to look at these companies from a medium term perspective.

In case of Glenmark, we are expecting a very strong earnings growth for this and next financial year. A large number of ANDA approvals that were pending have already come through and we expect some more key approvals to come in the remainder of the year.

The company has got large cash infusion from a Temasek and the balance sheet profile of the company should markedly improve over the medium term with the cash been used to pay down debt.

The company has expected strong free cash flow (after capex) over the next two years. Therefore, in the medium term perspective, Glenmark should form a part of the core portfolio and Aurobindo continues to sort of delight investors with a very strong both topline and bottom line numbers and it continues to remain part of our core recommendations with the medium term perspective.