The healthcare sector has been under pressure for many quarters now amid earnings weakness, US pricing concerns and USFDA worries. The Nifty Pharma index fell more than 18 percent against the 4 percent rally in the Nifty50.
Even in the last 30 months, the Healthcare index plunged 28 percent whereas the Nifty50 shot up 20 percent. During the same period, Lupin corrected 46 percent, Sun Pharma 40 percent and Cipla 25 percent.Hence, the valuations turned attractive and, with expected improvement in earnings, there could be rerating in coming days, brokerages feel.
In case of Sun Pharma, the research firm believes the share price will rise in absolute terms over the next 30 days as the short-term valuation is much more compelling after the recent fall.
"The stock is trading at 20-25 percent discount to its historical valuation and we believe that the stock can rerate, driven by an earnings recovery," Morgan Stanley said, adding specialty ramp-up should bring incremental upside.
Lupin, as well as Sun Pharma, corrected 67 percent each from their all-time highs touched in October and August 2015 respectively.
Morgan Stanley also has overweight rating on Lupin with a target price at Rs 1,003, implying 47 percent potential upside from current levels as it believes the share price will rise in absolute terms over the next 30 days.
The stock is down 53 percent over the last 30 months against sensex up 27 percent in the same time.
"We expect steady earnings growth (55 percent EPS F20-21e CAGR) over the next two years and product pipeline includes a lucrative opportunity," the brokerage reasoned.
In case of Cipla, "valuations seem attractive at current levels and we believe the share price will rise in absolute terms over the next 30 days," said Morgan Stanley which has equalweight rating on the stock with a target price at Rs 578 per share, implying 36 percent potential upside from current levels.
The brokerage expects Cipla's business to normalise in the medium term.
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