Risk-reward ratio is favourable in select pharma companies: CLSA

The brokerage has upgraded Torrent Pharma to ‘buy’ from ‘outperform’ with an unchanged target price of ₹3,550.

CLSA said midcap pharma companies are down 30-40% from their peak levels over the past six months due to earnings disappointment caused by weak US sales or input cost pressures.

The brokerage said price hikes in India and Brazil would be a near-term catalyst for Torrent Pharma.

“In our base case, we assume Torrent to grow faster than industry in India and Brazil and for it to see a gradual recovery in other export markets along with steady margin expansion from FY23,” said CLSA.

Similarly, for Dr Reddy’s, an increase in North America sales would be a trigger, it said.

CLSA said the concerns around the Russia-Ukraine crisis on Dr Reddy’s operations are overdone. Russia operations contribute around 12% to Dr Reddy’s revenue. Sanctions by the US typically apply to specific entities in Russia’s defence, intelligence, energy and financial sectors, said CLSA.

The brokerage has a ‘buy’ rating on Dr Reddy’s with a target price of ₹5,720 while on Cadila Healthcare, CLSA has a ‘buy’ rating and a target price of ₹550.

In the case of Cadila, CLSA said there is favourable risk-reward but the catalysts or triggers will play out over the long term.

Shares of Cadila Healthcare ended up 1.32% at ₹371.60 on Wednesday and Torrent Pharmaceuticals also ended in the green, up 1.18% from the previous close at ₹2,736. Dr Reddy’s shares ended down 0.28% at ₹4,198.75.