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Sunday, May 3, 2009

Top Stocks To Buy At Decent Bargain Value From Pharmaceutical Sector

Some stocks from the pharmaceutical sector could fall into 'good or great businesses available for a decent bargain value' category. There are many analysts who argue that pharma represents an more stable value proposition than the FMCG sector in the face of the global economic slowdown as the pharma companies' bargaining power will remain undiminished owing to the 'life-saving' nature of their business.

Indian pharma companies have an additional bull factor going for them. This is the rapidly growing business segment of Contract Research and Manufacturing Services (CRAMS) that some of them provide to patentholding (innovator) companies in the western world. Globally, CRAMS was a $44-billion space in 2007, and analysts estimate it will grow by at least 12% CAGR to cross $80 billion by 2012.

Among the most profitable and consistent stories is that of Divis Labs. It has strong chemistry skills and is present in the highly lucrative custom synthesis subsegment of CRAMS. The newly started carotenoids business can become another profitable opportunity for Divis. The earnings growth at Divis has been spectacular at 197% for 2006-7 and 70% for 2007-8, as it has exploited the first mover advantage and ramped up the business. While this will surely level off over 2008-9 (an estimated 21% growth in earnings per share) and 2009-10 (estimated growth of 16%), Divis remains a highly profitable business at over 40% EBIDTA and 43% RoCE in 2007-8. At around 11 times 2009-10 earnings, it is cheaper than the pharma companies that are growing slower.

The other companies in this space are Nicholas Piramal, Dishman Pharma and Jubilant Organosys. The marginal players include Shasun Chemicals and Suven Pharma.

Read More From: Pharmaceutical-Healthcare sector

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