International Journal For Multidisciplinary Research

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Relative Valuation on Pharmaceutical sector stocks

Author(s) Sathi Adharsh, Dr. Chandra Shekar, Dr. Balanji Reddy Mora
Country India
Abstract This study explores the relative valuation of pharmaceutical stocks by analysing the financial performance of Sun Pharma, Cipla, Divis Laboratories, Torrent Pharmaceuticals and Dr. Reddy's Laboratories for the financial year 2020-2024. The study uses ratio analysis to assess profitability (EBITDA margin, net profit margin), liquidity (current ratio, quick ratio), leverage (debt/equity, interest coverage ratio) and efficiency (asset turnover, inventory turnover). Additionally, relative valuation measures such as price-to-earnings (P/E) ratio, price-to-book (P/B) ratio and enterprise value-to-sales (EV/Sales) ratio help determine whether the stocks are undervalued or overvalued compared to the industry benchmark. The results show that Sun Pharma, Cipla and Dr. Reddy's Laboratories are undervalued or overvalued compared to the industry benchmark. Reddy's Laboratories is showing strong financial performance and remains undervalued, making it an attractive investment option. Divis Laboratories, despite its high valuation ratio, is showing declining earnings, suggesting a possible overvaluation. Torrent Pharmaceuticals is facing liquidity and debt issues, which pose financial risks. This study highlights the importance of relative valuation in stock valuation, providing insights for investors to identify undervalued opportunities in the pharmaceutical sector.
Keywords Relative valuation in stock valuation, Financial analysis, Ratio analysis
Field Business Administration
Published In Volume 7, Issue 1, January-February 2025
Published On 2025-02-13
DOI https://doi.org/10.36948/ijfmr.2025.v07i01.37039
Short DOI https://doi.org/g84xgf
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