Jefferies noted that India's share of all Drug Master Files is 38 per cent and generic products for the US market is 32 per cent, highest among all regions.
Indian pharma companies have avoided any adverse blows, with only one Indian company having to recall Metformin.
Pharmaceuticals shares remain in focus due to the newsflow and developments around COVID-19 vaccine. In India, chronic therapies have been preferred over acute for better growth and profitability. Foreign brokerage Jefferies has initiated coverage on 11 pharma stocks, with ‘buy’ rating on five stocks, ‘hold’ on three and ‘underperform’ rating on the remaining stocks. The coverage companies have gained share in API and finished dosage facilities servicing the US market since 2013. Jefferies noted that India’s share of all Drug Master Files is 38 per cent and generic products for the US market is 32 per cent, highest among all regions. Covid has driven adoption of e-pharmacies in India.
Besides buy call on five stocks, Jefferies has ‘hold’ rating on Lupin, Divis Laboratories and Biocon stocks, and underperform rating on Sun Pharma, Alembic Pharma and Torrent Pharma. The report combines top down and bottom up approaches to take a fresh look at India’s pharma sector. Unique data in the report shows that jefferies coverage is winning the pharma manufacturing game and will continue to benefit over the long- term. “Emerging risks in the India market include e-pharmacies, who can impact the profitability of chronic therapies,” it added.
Dr. Reddy’s Laboratories: Jefferies sees a 20 per cent rally in Dr. Reddy’s Laboratories stock price with a target price of Rs 5,932 apiece. The report noted that US business will grow at double digits CAGR over the next 5 years. India business will benefit during FY21-22E from the integration of Wockhardt portfolio as well as the recent launch of Avigan and Remdesivir. Margins have expanded by 400bps over FY18-20E purely driven by cost control. A date settled gRevlimid launch will add 10% EBITDA from FY23. 28% FY20-22E EPS CAGR.
Cipla: Cipla is India’s leading player in respiratory therapies with a 22 per cent market share in the category. Cipla stock will require a 20 per cent from the previous close to achieve the target price of Rs 913 apiece. Jefferies in the report said that approval and a successful launch of Albuterol sulfate inhaler in the US has showcased that Cipla can play on these same capabilities in the regulated markets. A healthy pipeline for US, continuing respiratory/Covid gains in India and cost control can deliver a 29 per cent EPS CAGR over FY20-22E, with majority gains materializing in FY21.
Cadila Healthcare: A significant part of US gains are from specific opportunities like gLialda and gAsachol which bring in 8 per cent of sales but 26 per cent of company’s overall EBITDA. Foreign brokerage expects a 24.5 per cent rally in the Cadila Healthcare stock price from the previous close. Cadila’s margins will inch up as it gains from cost control and India Covid launches.
Alkem Laboratories: Jefferies noted that Alkem has grown at 15 per cent CAGR in IPM during FY15-20, outperforming the broader market. The company derives 85 per cent of its India revenues from acute therapies, the slow growing part of the market. Jefferies has given a target price of Rs 3,205 apiece, implying a 20 per cent return from yesterday’s close. India business is at low risk from the emerging threat of e-pharmacies.
IPCA Laboratories: Jefferies has recommended to buy IPCA Laboratories shares with a target price of Rs 2,516 apiece, a 9 per cent gain. The company’s EBITDA has more than doubled over FY18-20; India formulations and API together account for 75 per cent of that change. India business is less susceptible to risks posed by e- pharmacies.