Midcap: After ‘74% Decline’, Bulls Looking for Mean Reversion!

The pharma space has shown a lackluster performance for a long time. After the fears over the Covid-19 pandemic faded, the entire pharma sector seemed to have faced severe liquidation from investors’ portfolios.

The Nifty Pharma index, which constitutes 20 pharmaceutical and life sciences companies with strong fundamentals has delivered a negative return of 13.3% in the last one year. In fact, the index fell to near a 2-year low on 14 March 2023 when it marked a bottom of 11,542.45. Investors looking to invest in the pharma space for the long term or even for short-term mean reversion might want to look for companies at these beaten-down levels.

Image Description: Daily chart of Gland Pharma with RSI at the bottom

Image Source: Investing.com

One stock from this sector that is catching attention on the street is Gland Pharma Limited (NS: GLAD ). The company has a market capitalization of INR 20,517 crores and holds a weightage of around 2.04% in the Nifty Pharma index. The stock fell by a whopping 74% from its all-time high of INR 4,350, marked on 12 August 2021 to an all-time low of INR 1,130 a few sessions back.

Some of the major reasons for this fall were the deteriorating financial performance on the back of headwinds in the US business with reduced off-take of products and supply chain destructions which resulted in production delays. Normalization of Covid-19-related sales was also a key factor that put a dent on revenue in the recent past.

On the other hand, there are several growth drivers which should not be ignored. China remains a key geographic focus of the company and it is in the advanced stages of regulatory review for a couple of products filed in China, and expects approvals very soon. It is also expanding its penetration in the rest of the world markets such as South Africa and Kazakhstan. At the current price of INR 1,280, the stock is currently trading at a TTM P/E ratio of 20.76, making it an attractive bet for investors.

On the charts, the stock seems to be bottoming out. One reason is the bullish divergence at the all-time low which is a bullish reversal sign. On its way up, the stock also surged past a short-term falling trendline resistance (as can be seen from the chart above). For short-term traders, a level of INR 1,400 can be looked at, above which, waiting for INR 1,550 might not be a bad idea.

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