Shares of pharma companies will be in focus during Friday’s trading session as global brokerage firm UBS has initiated coverage on the pharma sector. UBS mentioned that trends are weakening in both India and the US.

UBS has initiated coverage on Zydus Lifesciences Ltd. and Dr Reddy’s Laboratories Ltd. with a ‘Sell’ recommendation, setting price targets of ₹850 and ₹5,700 per share, respectively, citing that the market is overestimating their core margins.

A ‘Sell’ rating has also been issued for Aurobindo Pharma Ltd., with a price target of ₹1,333 per share, due to high valuations despite sluggish growth.

Similarly, Lupin has also received a ‘Sell’ recommendation with a price target of ₹2,250 per share from UBS, as one-off benefits for FY25 and FY26 are already priced in.

The foreign brokerage wrote in its note that the Street is under-appreciating growth slowdown in both India and the US. India and the US together account for 70-80% of sector profits and would imply lower growth.

While the companies have healthy balance sheets to invest in new growth drivers, the normalisation of growth may take time.

UBS prefers Sun Pharma, issuing a buy recommendation with a target of ₹2,450 per share, expecting the company’s patented molecules to double in revenue over four years. Sun Pharma’s margins are expected to expand by 650 basis points, leading to an overall EPS CAGR of 19%.

The brokerage prefers Cipla, citing that the potential upside in the US market, particularly from its injectable and respiratory portfolios, is not yet fully reflected in the stock. UBS has a ‘Buy’ call, with a price target of ₹2,060 per share on Cipla.