Macquaries sees Divi's Laboratories and Syngene International as well placed in terms of growth, margin profile and return ratios
The short term trend of Nifty continues to be positive and one may expect further upside in the market for the short term.
With news flow and developments around COVID-19 vaccine, pharma stocks have nearly doubled from March lows. The Nifty Pharma index has rallied around 95 per cent from its March low of 6243, in comparison, Nifty 50 managed to gain 38 per cent during the same period. Macquarie Research has initiated coverage on three pharmaceutical companies – Divi’s Laboratories, Syngene International and Solara Active Pharma Sciences. The research firm noted that India commands over 4 per cent share of the global CRAMS (contract manufacture and research services) market. Macquarie believes that CRAMS is a multi-decade opportunity for Indian pharma companies.
Macquarie sees Divi’s Laboratories and Syngene International as well placed in terms of growth, margin profile and return ratios. It also added that outsourcing is increasingly becoming a strategic function in most big pharma as they leverage CROs (Contract Research Organisation) and CDMOs (Contract Development and Manufacturing Organisation). On the back of supply disruption sure to COVID-19 pandemic, Macquarie believes that, in a normalised growth scenario, the structural tailwinds for Indian API companies are strong. “Led by the rising need of formulation companies to diversify supply chains, increasing regulatory oversight on API facilities, IP conflicts and competing interests, and geopolitical tensions driving import substitution, we expect Indian companies to benefit,” it said.
CROs offer outsourced services to support discovery and development for R&D-driven organisations across sectors like pharma, biotech, biopharma, nutraceuticals, animal health, etc. While CDMOs provide a variety of services, from drug development to pre-clinical and clinical trials to commercial production. On the other hand, within API (Active Pharmaceutical Ingredient) companies, the research firm believes that pure-play suppliers with a long-term focus and a strong regulatory track record, like Divi’s Laboratories and Solara Active Pharma Sciences, are the best plays on the theme.
Divis Laboratories: Macquarie highlighted that Divi’s Labs is among the top three API manufacturers in the world. It outscores Indian peers with its superior product selection, agility, relentless focus on efficiencies, low-cost manufacturing at its two large facilities and employee retention. It is one of the few dependable, pure-play API manufacturers globally. Macquarie has initiated an ‘outperform’ rating to it with a price target of Rs 3,764 apiece, implying an upside of 18.36 from Wednesday’s close.
Syngene International: Syngene is a pure-play services company and is one of the largest contract research employers globally. With increasing R&D outsourcing, urgent demand for healthcare solutions post COVID-19 and geographical diversification discussions with clients gaining ground, the research firm believes Syngene International is well-positioned to grab higher share in the global CRAMS market. With an outperform rating, it will Syngene International to jump over 25 per cent from the previous close to reach the target of Rs 708 apiece.
Solara Active Pharma Sciences: Macquarie in its report highlighted that Solara is well placed to capitalise on the huge opportunity for Indian API companies arising from dual-sourcing and import substitution owing to robust customer relationships with a long-term focus, healthy filings and global cost leadership in key molecules like Ibuprofen. Macquarie expects Solara Active to outperform and has given a price target of Rs 1,680. This translates to a 44 per cent upside from Wednesday’s close.
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