The CRDMO industry (Contract Research, Development, and Manufacturing Organization) in India has evolved from being perceived as quasi-chemical firms till a few years ago to one of the important subsets of the overall pharma sector. They are emerging as strategic partners for global pharma innovators. The spotlight has shifted to the sector and according to Jefferies, the Indian CRDMO sector’s market cap is now at $40-50 billion. They believe the China+1 structural story can drive high-teen revenue CAGR for the next decade.
No prizes for guessing, Jefferies has listed some key stocks in this segment to take advantage of the high growth potential. Sai Life Sciences is their top pick in the sector. Divi’s and Cohance are the other stocks that they are betting on in this sector and have initiated coverage on Cohance with Buy. They have upgraded Divi’s to Buy as well.
Jefferies on Sai Life Sciences: Top CRDMO pick
The recently listed Sai Life Sciences is Jefferies’ top pick in the health sector. According to the international brokerage house, Sai’s “strong east-west presence, integrated services, high growth visibility and potential earnings upgrades make it the best CRDMO bet.”
They expect Sai Life Sciences to register 15% revenue growth and 24% EBITDA growth on a compounded basis between FY25-FY28.
The brokerage house has a ‘Buy’ recommendation price target of Rs 1,100. This implies 10% upside for the Sai Life Sciences share price.
Jefferies initiates coverage on Cohance with Buy
Another key CRDMO stock on Jefferies’ radar is Cohance. The brokerage house has initiated coverage on Cohance with Buy. They have set a price target of Rs 1,150. This implies nearly 29% upside for the Cohance Lifesciences share price from current levels. They believe that the company has a “strong right to win in the ADC segment backed by its track record.”
Jefferies upgrades Divi’s to Buy
Apart from maintaining their Buy rating on Piramal as the best value play, Jefferies has upgraded its recommendation for Divi’s to Buy. This is on the basis of the company’s GLP-1 drug pipeline, which they term as “exciting”. They have a price target of Rs 7,150, implying 15% upside for Divi’s Labs share price. Jefferies has Rs 260 target for Piramal Pharma share price. This indicates that the shares may surge a whopping 37% from current levels.
Jefferies has Hold rating on Syngene & Gland
The international brokerage house recommends Hold on Syngene with a target of Rs 720 per share and Gland Pharma with a target of 1,970 per share “due to limited triggers.” Jefferies recommends Underperform for Laurus Labs with a target of Rs 590 per share “for sketchy execution track record.” This target indicates significant downside for Lauras Labs.
Jefferies on CRDMO sector: 3 big triggers
Jefferies estimates significant revenue growth potential for the CRDMO sector. However, growth hasn’t been uniform, “given Covid-related opportunities and the subsequent withdrawal. Looking ahead, we expect 18% CAGR during FY25–FY30,” they added.
According to Jefferies, this growth will be supported by “strong pipeline visibility, big pharma diversification (China+1), and weight loss/T2D (GLP/GIP etc) drugs.”
China + 1 Diversification
According to Jefferies’ estimates, the “China+1 can be an annual $700 million sales opportunity. Historically, US pharma companies relied heavily on Chinese CRDMOs like Wuxi, “but geopolitical tensions have prompted a shift toward alternative markets. We believe Indian CRDMOs, with their strong small-molecule capabilities and established track record in the segment, are well-positioned to capture this opportunity.”
According to Jefferies, this is a “structural shift which will continue for more than a decade.” However, they highlighted that the “key risk factor is the rising in-licensing deals by Big Pharma with China, which results in continued dependence on Chinese CRDMO.”
GLP pipeline
The rapidly evolving pipeline for GLPs is also expected to provide an additional boost for the Indian CRDMO sector. Jefferies stated that “India’s CRDMO pipeline is expanding rapidly, led by Big Pharma-driven projects.” As per the report, “Divi’s has a blockbuster GLP-1 pipeline contracts, Cohance has ADC led pipeline, while Piramal and Sai Life Sciences have strong late-stage portfolios.” They see these as the key triggers to boost revenue for these stocks.
Focus on weight-loss/T2D
In the weight-loss/T2D space, Jefferies pointed out that the “real opportunity lies in newer drugs like Tirzepatide and Orforglipron, which use synthetic processes or belong to the small-molecule class.” They estimate that the relevant intermediate market size for these drugs will be worth $1.2bn by 2030 and will provide continued pipeline momentum for India CRDMO.