Stocks to buy: Biocon, Dr Reddy’s, Sun Pharma, among Phillip Capital’s pharma stock picks for up to 22% upside
- Phillip Capital estimates pharma companies under its coverage to report 12% YoY earnings growth on account of 40 bps expansion in EBITDA margins and 15% sales growth in Q2.
Indian Pharma Industry is set to gain from the continuing benefits from gRevlimid as well as easing price pressure in the US generics market, softening input, freight and energy cost and rupee depreciation amid the moderating domestic formulations.
Phillip Capital estimates pharma companies under its coverage to report 12% YoY earnings growth on account of 40 bps expansion in EBITDA margins and 15% sales growth in Q2.
While the US generic price pressure eased sequentially, the incremental benefits from key launches and 4% INR depreciation YoY complements US generics growth.
Moreover, after seeing consistent double-digit growth in the branded formulations business over last years, the industry is continuing its moderated growth trend of Q1 into performance in Q2 despite the advantage of price rise YoY. Therapies like Cardiac, Derma, pain management saw >6% YoY growth, while respiratory turned weak after a strong growth in the recent months, as per Phillip Capital.
Phillip Capital has Buy ratings on these pharma stocks:
Biocon | Buy | TP: ₹310
Phillip Capital expects Biocon’s sales to grow 58% mainly led by the integration of acquired biosimilars operation of Viatris as well as sequential improvement in Fulphila/Semglee penetration in the US. It sees strong 28% growth in research services led by ramp up in CDMO and steady growth in small molecules.
The company’s margins may expand 350 bps to 23.8% led by the integration advantage, improving biosimilars sales and improving margins in research services, the brokerage said.
It has a ‘Buy’ rating on the stock with a target price of ₹310 per share, implying an upside of 21% from Friday’s closing price.
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Zydus LifeSciences | Buy | TP: ₹725
With continued gRevlimid benefit, Q2 earnings of the company are expected to remain strong with 44% YoY growth. Margins are likely to improve 740 bps YoY on a low base and incremental benefits of gRevlimid, leading to 65% jump in EBITDA.
The brokerage gave a Buy call on Zydus LifeSciences with a target of ₹725 per share, expecting an upside of over 22% from Monday’s closing price.
Dr Reddy’s Laboratories | Buy | TP: ₹6,200
Dr Reddy’s Laboratories is estimated to see 5% rise in revenue on account of strong US sales at $355 million and 10% like to like growth in domestic formulations. Margins may correct 440 bps QoQ and 430 bps YoY mainly due to lower gRevlimid sales and product mix, leading to 8% fall in EBITDA.
Phillip Capital has a Buy call on the stock with a target of ₹6,200 per share, implying an upside of nearly 13% from Monday’s closing price.
Sun Pharmaceutical Industries | Buy | TP: ₹1,250
Sun Pharmaceutical Industries is expected to report 10% sales growth on account of continued gRevlimid sales ($40 million) and sustained growth in US specialty (+19%) as well as domestic formulations (+8%), despite muted Taro and impact of import alerts. Its margins are likely to correct 240 bps QoQ on account of lower R&D base and remediation charges.
The brokerage has a ‘Buy’ rating on the stock with a target price of ₹1,250 per share, expecting a 10% upside from previous close.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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