By Ekta Sonecha Desai
The pharmaceutical sector is one of the most important and rapidly growing industries in India. It plays a crucial role in providing affordable medicines and generic drugs globally. India’s strong manufacturing capabilities and increasing healthcare demands contribute to its steady expansion. The sector is expected to grow significantly in the coming years.
However, in recent times, pharma stocks have been under pressure, drawing investor attention. Several factors have contributed to this decline. Concerns over potential US tariffs on Indian pharma exports have created uncertainty in the market. Additionally, stretched valuations led to corrections as stocks had been trading at higher-than-usual price levels.
While stock price declines can be concerning, they also create potential entry points for long-term investors. A common way to assess whether a stock is available at an attractive valuation is by analyzing its Price-to-Earnings (P/E) ratio.
A low P/E ratio can indicate that a stock is undervalued relative to its earnings potential. However, low valuation alone does not guarantee a good investment—it is crucial to consider the company’s fundamentals, growth prospects, and industry trends.
In this article, we will examine five pharmaceutical companies with low P/E ratios. For this study, we have considered only those stocks with positive earnings (P/E greater than zero) and a market capitalization of more than Rs 5,000 crore.
#1 Natco Pharma
Natco Pharma is a research and development oriented, vertically integrated pharmaceutical firm involved in the development, manufacturing, and marketing of complex products for niche therapeutic areas.
The company has made its presence felt in all three business segments i.e. finished dosage formulations (FDF), active pharmaceutical ingredients (APIs), contract manufacturing business.
The company is trading at a PE multiple of 7.7 times currently. It is considerably below its 10-year median PE of 27.4 times.
10-Year PE Chart of Natco Pharma
ICICI Securities has placed a target price of Rs 1,675 on Natco Pharma, which reflects an enormous 111.2% appreciation from its current market price. The brokerage sees this target being reached in October 2025.
Natco Pharma is gearing up for a post-gRevlimid period by targeting niche, high-value generic medicines. The company is relying on 6-7 niche products to drive growth once Revlimid’s exclusivity period is over. Some of the future drugs are gOzempic (anti-diabetic), gWeovy (weight management), and gLynparza (anti-cancer).
The firm also possesses a robust cash balance of Rs 3,000 crore, which it is going to use for strategic acquisition or growth.
ICICI Securities is optimistic that Natco will ride the transition phase and maintain growth based on its pipeline of complex generics and strategic expansion of markets.
#2 Dr Reddy’s Laboratories
Dr. Reddy’s Laboratories is a top India-based pharmaceutical firm that provides a range of products and services such as APIs, Custom Pharmaceutical services (CPS), generics, biosimilars and differentiated formulations.
It is now trading at a PE ratio of 17.4 times. It is significantly lower than its 10-year median PE of 27.5 times.
10-Year PE Chart of Dr Reddy’s Laboratories
Motilal Oswal has assigned a target price of Rs 1,330 for Dr. Reddy’s Laboratories, which implies an upside potential of 18.5% over the existing market price of Rs 1,122.
Dr. Reddy’s is concentrating on enlarging its pipeline in North America and emerging markets. The company has opportunity developments in semaglutide (for diabetes) in Canada and other geographies.
It aims to file an abatacept biosimilar application in the US by December 2025, which is a potential long-term growth opportunity. Base portfolio price erosion and rising competition in g-Revlimid may cap near-term growth.
Russia, India, and Brazil growth are anticipated to contribute to solid growth. Expansion is ongoing in research and development, with investments made in specialty drugs and niche biosimilars.
Motilal Oswal opines that while Dr. Reddy’s is taking strategic initiatives to create future growth drivers, the next couple of years might be a time of consolidation given competitive headwinds and price pressures.
#3 Aurobindo Pharma
Aurobindo Pharma is mainly involved in production and marketing of APIs, generic drugs and ancillary services.
It is now trading at a PE ratio of 17.8 times. It is trading at equal footing with 10-year median PE of 17.4 times.
10-Year PE Chart of Aurobindo Pharma
Axis Securities has placed a target price of Rs 1,500 on Aurobindo Pharma 39.7% above its current market price.
Its injectable business is a major growth driver, but regulatory issues and price erosion may affect growth. The company has been heavily investing in biosimilars, peptides, and API growth to enhance its portfolio.
According to Axis Securities Return on invested capital (ROIC) is likely to be better in the second half of FY26, showing the advantages of strategic investments. The company is growing in emerging markets and utilizing supply scarcity in Europe for growth.
The brokerage is of the view that while near-term regulatory issues, Aurobindo Pharma’s investments in high-growth areas are poised for solid long-term performance.
#4 Zydus Lifesciences
Zydus Lifesciences is an Indian pharmaceutical firm that develops, researches, manufactures, markets, and sells healthcare products. It was previously named Cadila Healthcare.
It is now trading at a PE multiple of 19.7 times. It is slightly lower than its 10-year median PE of 23 times.
10-Year PE Chart of Zydus Lifesciences
ICICI Securities has placed a target price of Rs 1,000 on Zydus Lifesciences, which translates to a 13.2% appreciation over the current market price.
The firm is encountering short-term headwinds in the US, mainly owing to weakening sales of gRevlimid and gAsacol. Domestic market growth is steady, though, with robust performance in therapies like cardiology, gastro-intestinal, respiratory, anti-infectives, and oncology.
Zydus has brought in sitagliptin 505(b)(2) in the US, which may improve revenue and margins in FY26. The pipeline of the company has several high-value products, with further exclusive launches lined up in H2 FY27.
The India business is likely to deliver better-than-market growth on the back of a pipeline of innovative New Chemical Entity (NCE) products and the upcoming launch of Semaglutide. Zydus is aggressively pursuing mergers and acquisitions (M&A) deals in US specialty pharmaceuticals and India’s branded generics segment to increase its size.
ICICI Securities feels that although Zydus has long-term growth prospects, its reliance on proprietary products and US pricing pressures may cap earnings growth after FY25.
#5 FDC
FDC (Fairdeal Corporation) was established in 1936. It is one of India’s top fully integrated pharmaceutical companies.
The company is a market leader in the production of special formulations, and one of the world’s leading producers and sellers of oral rehydration salts (ORS). Zifi, Electral, Enerzal, Vitcofol, Pyrimon, Zocon, Zathrin, Zipod, Cotaryl and Mycoderm are some of FDC’s top brands in India and in the global market.
It is now quoted at a PE ratio of 23.1 times. It is trading very close to its 10-year median PE of 22.5 times.
10-Year PE Chart of FDC
The firm also seeks to build on its domestic formulations business, which has witnessed steady growth, by riding on flagship brands and increasing its portfolio of products. Internationally, FDC looks to overcome its challenges in the U.S. market by diversifying its export formulations and looking for new markets.
In addition, the firm is dedicated to strengthening its API business, leveraging recent momentum to satisfy worldwide demand.
Conclusion
India’s pharmaceutical industry is at a crossroads, with challenges as well as opportunities for investors.
As a world leader in generic drugs and a major producer of active pharmaceutical ingredients (APIs), India’s robust manufacturing infrastructure and rising healthcare needs continue to propel the industry’s long-term growth. However, recent volatility in pharma stocks, fueled by fears of US tariffs, valuation correction, and margin squeeze, has brought the industry into the spotlight of investors.
In spite of these near-term headwinds, the Indian pharmaceutical sector is poised for long-term growth. India’s CDMO market is expected to grow exponentially, spurred by growing pharmaceutical outsourcing and better regulatory compliance.
The domestic market is also expected to gain from enhanced healthcare awareness, government programs, and launches of new drugs addressing both chronic and acute ailments. These conditions position the sector as a sound long-term investment option.
Though stock price adjustments can present potential entry points, depending exclusively on valuations such as the price-to-earnings (P/E) ratio is insufficient. Investors need to look at a company’s overall fundamentals, such as its product pipeline, research and development strength, regulatory position, and market coverage.
A comprehensive approach will do a better job of finding businesses that are not only undervalued but also have the prospects for long-term growth in an intense competitive environment.
Disclaimer:
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Ekta Sonecha Desai has a passion for writing and a deep interest in the equity markets. Combined with an analytical approach, she likes to deep deep into the world of companies, studying their performance, and uncovering insights that bring value to her readers.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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