Religare Institutional Research believes that continued product mix improvements in the US (low-competition products) and stronger domestic formulations growth would drive Q2 performance of RCML pharma stocks.
''We expect PAT growth of 10% YoY, trailing EBITDA (15%) on higher depreciation. Sales growth will be robust (+16%) even as a large base (DRRD) and regulatory issues (IPCA) impact select players. Remain positive; prefer stocks with likely EPS upgrades (SUNP/LPC),'' it said.
''Post a significantly strong FY14 (30% growth), concerns on growth moderation and a likely de-rating (due to sector rotation) have emerged. While current sector valuations are still not at their historic peak, earnings momentum would remain stronger than the broader market. For our coverage universe, we model an EPS CAGR of 20% backed by 16% revenue CAGR over FY14-FY17E,'' said Religare.
''Continued focus on product differentiation in the US and scale-up of the RoW business would boost margin outlook, and would eventually improve return ratios. Prefer companies with a strong product pipeline and execution track record,'' it opined.
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