Domestic pharma business is a high roe business. But USA exports entail a lot of r&d costs and that takes some shine off the returns. Plus compliances related costs are also high. But still some companies like alembic have good return ratios, inspite of high r&d costs. Cipla is on a journey to improve its roe.
Last few years (4-5) have been tough for export facing pharma cos bcos of the excesses committed in the past. E.g sun pharma’s acquisition of ranbaxy. Excessive capex in other companies.
Basically what happened was that prior to 2015, Indian companies minted money by exporting drugs, especially to US by getting high margins and hence high ROEs. But as usually happens, high returns attract high competition which after a time affects margins and ratios, and sooner or later those who have committed excesses suffer, and often go bankrupt, thus reducing competition. This again leads to a cycle of improvement in margins as competitors reduce and the field becomes better in terms of lesser competition. All these up and down cycles take time, and stock prices move in tandem or often in anticipation, as precursors.
Loss of momentum in market cycles is often visible by signs of varying nature. Most common is lack of positive price response to what is usually very good news or data points or events. At the fag end of bull run in most companies, there is usually a sharp parabolic rally, and inspite of that kind of rally, most market participants are in agreement about the merits of investing in the same company. Unanimity in bullish prospects for a company/sector is usually a warning sign we should be on the lookout for. Inspite of knowing this at times we all get sucked in by the price momentum.