Earnings season to be good for pharma sector this quarter

Alok Dalal, Research Analyst, Religare Securities feels that the results will be good for the pharma sector. "Amongst the sixteen companies that we cover, we think the topline growth would be 34% and the bottomline growth would be around 44%," he said. Sarabjit Kour Nangra, Angel Broking said that the outperformers will come from some the midcap space.

Excerpts from CNBC-TV18’s exclusive interview with Alok Dalal & Sarabjit Kour Nangra:

Q: What are you penciling in, in terms of a topline growth and a bottomline growth this quarter for the pharma space? We have seen a 30% outperformance in the first quarter, do you expect this outperformance to continue and what are your favourite stocks currently?

Alok Dalal: The results will be good for the pharma sector. Amongst the sixteen companies that we cover, we think the topline growth would be 34% and the bottomline growth would be around 44%. In terms of our top picks - we have Sun Pharma,Glenmark, Divis Lab and Opto Circuits as our top picks.

Q:  Who do you think will be the leaders in terms of performance and what may be the laggards in universe you look at?

Sarabjit Kour Nangra: The outperformers will come from some of the midcap space. We can see companies like Piramal Healthcare, Indoco Remedies doing fairly well and in terms of largecaps, we expect Sun Pharma to do fairly well because of the Pantaprazol being there in the market.

In terms of laggards, we don’t see major declines happening in rest of the companies but it has to be taken into fact that last corresponding period, we had a lot of other income coming in from forex. If we adjust for that we expect a decent performance coming in overall.

Q: What is your sense of which stocks would be the biggest beneficiaries of this rupee depreciation we are seen this quarter of about 7%? 

Dalal: One would see stocks like Biocon, Cipla and Dr. Reddy’s, stocks that are linked largely to the rupee impact. So, rupee depreciation should benefit these stocks. 

Q: One has seen a decent amount of outperformance from the pharma stocks, will any of them throw up some nasty performance highlights, would you say some of them are overpriced?

Nangra: If you see the performance in the healthcare sector that has been largely driven mostly by the largecaps which have outperformed significantly in a bigger manner than in the midcap space. So the midcaps have a lot to catch from hereon. We do not expect any nasty surprises to come through as I said the only caveat is that last year corresponding period they had booked a lot of other income, which has been factored in terms of projections. So we do not expect any nasty surprises to come in, which can drag the prices downwards.

Q: Do you think any of the stock prices have run up and the companies may throw up something nasty by way of numbers contrary wise where are you expecting positive surprises, which are the stocks you would chase?

Dalal: I do not think there will be any negative surprises as such. As Nangra mentioned, about the other income factor I think it has largely been priced in. Even if we do not consider the acquisitions made in FY08 by these companies, we still see more than 20% bottomline growth, which I believe, is very healthy for the pharma sector.

Q: If you could quickly sum up what themes you would play; generics, CRAMs or the R&D space this quarter?

Dalal: For generics if we have to pick one stock it would be Sun Pharma and for CRAMs one stock would be Divi’s Laboratories.