Home / Markets / Mark To Market /  What vaccine deregulation means for pharma stocks

The government’s announcement that all citizens above 18 years of age will be able to get vaccinated from 1 May onwards has sharpened the spotlight on pharmaceutical companies. The fact that the companies are free to set their price for the vaccines is viewed as a big booster shot for their earnings. As such, the covid-19 pandemic has meant that vaccine manufacturers capitalize on the rising requirement of vaccination.

The stocks of Dr Reddy’s Laboratories Ltd, Gland Pharma Ltd, Cadila Healthcare Ltd and Aurobindo Pharma Ltd, among others, have gained in a big way with the expected launch of their covid-19 vaccines.

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Dr Reddy’s with Russian Direct Investment Fund will soon be launching the Sputnik-V vaccine following the recent approval for emergency use by Indian authorities. Expectations of such launches from Cadila and Aurobindo, too, have increased significantly.

To be sure, vaccine makers Serum Institute of India Pvt. Ltd and Bharat Biotech Ltd have the early-mover advantage with their respective vaccines already in use.

That said, the sheer size of the country’s population that needs to be inoculated is enough to tender a huge opportunity for every company.

Analysts at BofA Securities India Ltd said 34-48% of the population will be inoculated in 2021. They have assumed that Serum Institute’s vaccine production would be enhanced to above 110 million by June from the existing 70 million per month. Similarly, Bharat Biotech’s 5 million per month production would rise to 12 million by July.

In addition, they expect the approval of four more covid vaccines, including Cadila’s indigenous jab, and three foreign vaccines by Johnson & Johnson-Biological E Ltd, Novavax-Serum Institute and Pfizer-BioNTech.

The latest move to increase coverage of vaccination would translate into an increase in distribution channels and improved realizations. Analysts at CLSA said given the freedom on pricing, better realizations in the private market may spur local vaccine production. To be sure, some analysts do not see high pricing by companies.

“With the government now opening up the distribution of vaccines to private players, we estimate an additional 100 per dose for 50% of the vaccines," wrote analysts at Motilal Oswal Financial Services Ltd.

That said, vaccine manufacturers are set to gain immensely from this move. CLSA expects gains from covid-19 vaccine to be the highest for Cadila as it has end-to-end capabilities. Cadila’s Ebitda for FY22-23 may get a 7-23% boost from vaccine production. Dr Reddy’s and Aurobindo may see a 5-13% and 1-5% boost to their Ebitda, respectively.

Meanwhile, the second wave has resulted in a rising number of patients, which has increased demand for other covid-related drugs. Demand for remdesivir have shot up and may increase revenues for Cipla and other key manufacturers such as Cadila and Dr Reddy’s. Other drugs such as favipiravir are also in demand, which will benefit companies such as Glenmark Pharmaceuticals Ltd and Cipla.

Tocilizumab (Cipla) and Itolizumab (Biocon), which are used for treating covid-related complications, are also seeing a surge in demand, according to analysts at Axis Capital Ltd.

Analysts are expecting 8-10% growth for the Indian pharmacueticals market in FY22, partly due to the low base of FY21. But, as more and more Indians queue up for inoculation, pharma companies may see earnings climb, subject to free pricing.

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