Outlook 2024: 2 key reasons why Jefferies expect subdued pharma returns over 2023

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Also Read- HAL, BEL, BDL: 4 fundamental factors that keep 2024 outlook firm for Defence PSU With decreasing margin of safety, they have downgraded Dr Reddy's to Underperform Ratings. They have upgraded Torrent to Buy from Hold on attractive valuations relative to peers.

Lack of positive earnings surprise may keep pharma returns subdued in CY24 versus recent past, they said 2 Key reasons for the same as per Jefferies are US generics market dynamics is unlikely to see any structural changes which justify higher valuations- Jefferies analysts believe that the lower price erosion witnessed by generic firms in the US in 2023 is mainly due to transient issues and not structural changes in the market. They believe companies that are seeing a resolution of manufacturing issues with the US FDA will return to the market sometime in 2HCY24 Underlying US growth from current pipeline does not support rerating- The implied FY26 estimated Enterprise Value to Ebitda valuation for core US generic businesses stands at an elevated 17-20 times for Dr Reddy's, Lupin and Zydus as per Jefferies and this can only be justified through big ticket launches.

Also Read- Fortis Healthcare share price gains 2%: up more than 50% in a year. Here's why Various large ticket size launches as those of oncology drug Revlimid (market size $8.7 billion) had benefitted many Indian Pharma manufacturers.

Nevertheless competition is now creeping into the space. Also such large launces do not take place very often though product launch pipeline remains impressive for Indian pharma Jefferies analysts have cut FY25-26 EPS by 3-7% for Dr Reddy's mainly from lower US sales and weak traction in India.