Stocks of drug makers are likely to trade in a narrow range along with the broad market next week in the absence of much action in the sector. However, the street will keep an eye on the Jul-Sep earnings of the companies. There is nothing much to watch for except the earnings. However, the expectations are quite subdued as far as the results are concerned.
Margins of drug makers are seen remaining under pressure with increasing competition in the market. Companies such as Dr Reddy's Laboratories, Ranbaxy Laboratories Ltd and GlaxoSmithKline will announce their Jul-Sep results next week and in the first week of November.
Domestic formulation business for most companies (DRL, Ranbaxy and Cipla in particular) is likely to witness high single-digit growth on back of increasing competition. As a result, margins are expected to be under pressure. According to the report, companies with short-term loans and high forward covers may have to bear the brunt with rupee depreciating against dollar.
Ranbaxy is likely to be worst hit while Sun Pharma to be better off. We expect the profit growth of pharmaceutical companies is likely to be marginal due to higher interest costs led by rising interest rates, and a higher effective tax rate on account of the increased minimum alternative tax rate and the exhaustion of tax benefits for export-oriented units.
