Pharma Vs FMCG: Can The Narrowing Valuations Sustain? Nomura Weighs In

The narrowing of domestic pharma valuations against the consumer companies will sustain in the near term, given the stronger growth of domestic pharma earnings, according to Nomura.

The valuation gap for domestic pharma companies has reduced versus the fast-moving consumer companies over the past two years, the brokerage said in a note on Dec. 11.

The narrowing of the valuation is driven by stronger growth of domestic pharma earnings supported by expansion of Ebitda margin and market concerns about a structural slowdown in consumer goods companies. "The market also expects pharma companies to effectively deploy capital in value-accretive acquisitions," Nomura said.

The brokerage expects some of these trends and sentiment to sustain in the near term, it said. "Hence the valuation gap may sustain or even change in favour of pharma companies."

Domestic pharma valuations are rich in the context of long-term risks, such as slower growth and regulatory interventions, Nomura added. The key risk to pharma valuations in the near term is an increase in input costs which could adversely impact Ebita margins, the note said.

The Indian pharmaceutical market, recorded year-on-year sales growth of 10.7% in November 2024, highest in the past four months, Nomura said quoting IQVIA data. "The growth was on a relatively low base," it said.

Price increases at 4-5% are the largest component of growth, indicating slow volume growth in branded generics, it said. "The slowdown is also acknowledged by contract manufacturers that we interacted with, indicating low order book accretion in the recent past."

The growth rate for branded generics is impacted by market share gains by trade generics, generics and private label medicines, the brokerage said.

In a recent note, HSBC Global Research said that the loss of gRevlimid sales from January 2026 is already priced into the valuations for Cipla and Sun Pharma. The firm sees minimal risk of negative earnings surprises for these companies.