The Hindu Business Line : Small-cap pharma stocks outshine Sensex

When it comes to pharma stocks, ‘small’ has turned out to be beautiful. While investors in pharma biggies such as Dr Reddy’s, Ranbaxy or GlaxoSmithKline Pharma may have seen their stocks straggling behind the markets in the past year, a host of small-cap pharma stocks have turned out to be multi-baggers!

In fact, small-cap pharma stocks, with a 44 per cent return over the year, beat the Sensex (38 per cent).

Little-known companies such as Bliss GVS Pharma, Kilitch Drugs, Gennex Laboratories and Twilight Litaka rose fourfold or more in this period. Significantly, over the same period, larger pharma companies (with a market capitalisation of Rs 10,000 crore or more) have declined by 9 per cent on an average.

In fact, even mid-cap pharma stocks (market cap of Rs 2,500-10,000 crore) haven’t fared too well. Just three of these stocks – Divi’s Laboratories (158 per cent), Glenmark Pharmaceuticals (72 per cent) and Biocon (60 per cent) – managed to beat the Sensex.

However, investor fancy for small-cap pharma stocks wasn’t driven by a favourable turn in their fortunes, because their earnings picture over the last two years has not been that great. Eleven out of the 38 small-cap companies that outperformed the Sensex have, in fact, recorded losses on a standalone basis in the recent year. But that hasn’t deterred investors from betting on shares of companies such as Shree Pacetronix, Parenteral Drugs, Bharat Immunologicals, Ambalal Sarabhai and BDH Industries; these stocks gained 172-325 per cent.

While the smaller pharma companies did not report great numbers, their less fancied mid-sized peers have delivered reasonable profit growth. Net sales for the 13 mid-cap pharma companies grew by around 25 per cent, while net profits expanded by a robust 54 per cent over the past 12 months. That the small-cap pharma stocks were available at throwaway prices could have swung the scales for them with investors.

Stocks that recorded the top-ten returns were each available for less than Rs 50 a year ago. Of the 38 stocks that outperformed Sensex, one-fourth was available for less than Rs 10 a year ago.

However, the flip side of this picture is that stocks that performed the worst during this period were also from this set. Over 40 small-cap companies have registered negative returns, giving company to investors in five mid-cap and three large-cap companies.

Related Stories:
Second-rung pharma stocks outdo index since May
Value buying helps pharma stocks

More Stories on : Pharmaceuticals | Stocks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page