Searching stars in the pharma index

Disclaimer- I am analyzing nifty pharma index constituents to evaluate the best opportunities for educational & personal investment purposes, using their performance in correlation with their market size.

Here I am using BCG Matrix to compare the market capitalization & market share growth of all the 20 companies which are part of NSE Pharma index.

The Boston Consulting Group’s- is a product portfolio matrix, which is designed to help with long-term strategic planning, and to help a business consider growth opportunities by reviewing its portfolio of products to decide where to invest, discontinue, and or develop products. It’s also known as the Growth/Share Matrix.

Let’s start the analysis:

NSE Pharma Index data (Source- NSE & screener)

Challenge in this analysis-

1. How to differentiate between high & low market size
2. How to differentiate between high & low market growth.

Solution to the challenges-

Descriptive stats of market size

1. Used descriptive stats on the market size and understood the mean of the data set is higher than the 3rd quartile- 75% of data( 5 companies are bigger than 15 companies ). So, I figured that these 5 are high market share companies and 15 are low market share companies.
2. According to IBEF Jun 2022 report, the Indian pharmaceutical sector revenues are expected to grow 12% year on year in 2022. So, I figured that If a company is growing 11–12% or above TTM as well as compounded from the last 5 years then I will consider it as high growth & vice versa for low growth.

IBEF Jun 2022 Report

BCG Matrix of the sector-

BCG MATRIX- Pharma index

Representation-

1. High Growth, High Share- (Star) Can be considered for a significant amount of investments for a longer period of time horizon.
2. High Growth, Low Share- (Question Mark) Investment should be made in companies depending on their chance of becoming ‘stars’ in the coming period.
3. Low Growth, High Share- (Cash Cow) These investments should be made for continuous cash flows and can be reinvested in ‘stars’ & ‘Question marks’.
4. Low Growth, Low Share- (Dogs) Divestment can be considered.

Limitations of analysis-

A high market share does not always lead to high profits. There are high costs also involved with high market share. Growth rate and relative market share are not the only indicators of profitability.

Thank you :)

Happy Investing & before doing that, you must read my previous blog!