5 Best Pharma Penny Stocks in India

Globally, India has the lowest manufacturing costs in the pharma sector.

This ability to manufacture high quality and low-priced medicines, presents a huge business opportunity for the domestic industry.

India's cost of production is approximately 33% lower than that of the US.

Over the years, domestic pharma manufacturers have experienced a significant increase in R&D spending to be competitive in the world market.

The Covid-19 pandemic may as well turn out to be a blessing in disguise for pharma companies as it pushed them to expedite focus on various pharma segments.

Further, pharma companies' efforts have been supplemented by the government's production-linked incentive (PLI) scheme.

All of this puts the top pharma companies in India in a sweet spot.

However, the opportunities are not just limited to the big pharma companies. Even their smaller counterparts can make a breakthrough and get recognised.

If the smaller companies do have a major impact in the future, the pharma sector penny stocks could turn into future bluechips.

Keeping that in mind, let's look at the top 5 pharma penny stocks in detail.

These companies are filtered using the Equitymaster stock screener and they fare well on several criteria including ROE, ROCE, debt metrics, promoter holding, and receivable days.

#1 Sudarshan Pharma Industries

First on this list is Sudarshan Pharma Industries.

The Mumbai-based company has a contract manufacturing facility for generic formulations.

It is also engaged in import & export activities, and supply of specialty chemicals, API, and intermediates.

The company was listed in March 2023 at Rs 69.35 per share against its issue price of Rs 73.

At present, shares of the company trade at Rs 80 per share.

In August last year, the company acquired 100% stake in Ratna Lifesciences through an all-cash deal worth Rs 55 million. Ratna Lifesciences specialises in oncology products.

Sudarshan Pharma is addressing a key challenge India is facing for the past couple of years - dependence on China for import of key APIs.

You see, India imports close to 70% of intermediate required for APIs from China. Imports from China have been increasing over the years.

Sudarshan Pharma is addressing this challenge by setting up a manufacturing unit to manufacture few of the critical APIs imported by China.

The company had already received an approval under the PLI scheme for promotion of domestic manufacturing.

The company's name was also recently included in approved qualified vendors list of many MNC companies.

As far as financials are concerned, in the first half of FY24, the company posted 37% growth in its net profit even as sales declined.

In the past three years, the company has more than doubled its revenue and profitability.

Financial Snapshot

Rs m, consolidated	FY21	FY22	FY23
Net Sales	1,934	3,571	4,613
Growth (%)	-	85%	29%
Operating Profit	75	114	158
OPM (%)	4%	3%	3%
Net Profit	27	52	70
Net Margin (%)	1%	1%	2%
ROE (%)	11.9	20.1	10.8
ROCE (%)	13	18.7	15.3
Dividend (Rs)	0	0	0.3
Debt to Equity (x)	1.3	1	0.3

Data Source: Ace Equity

Multiple tailwinds are working in the company's favour and it remains to be seen how it makes the most out of the situation.

Sudarshan Pharma is also exploring opening warehouses for chemicals, API and excipients in African Market (Congo and Kenya).

#2 Shelter Pharma

Next on this list is Shelter Pharma.

The company is engaged in the business of manufacturing herbal products in Human Pharma and in Veterinary space.

Apart from catering to domestic needs, the company exports to Egypt, Kuwait, Qatar, UAE, Bangladesh, Nepal, Iraq, Yemen, and Cameroon.

The company came out with its IPO in August 2023 to raise Rs 160 million.

It was listed at Rs 41 and currently trades at Rs 62 per share.

In November last year, the company received a major order worth Rs 10 million from Taha Drugs and Chemicals.

It also recently secured an order from Berlin International Medicines (KUWAIT), Equipment & Devices Trading Co. W.L.L for the product of D3 Cure 50ml and Ferrocure Capsule, worth Rs 7.5 million.

The company has posted a growth of over 60% in its revenue in the past two years while profit has shot up multifold.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	277	301	225	301	362
Growth (%)	-12%	8%	-25%	34%	20%
Operating Profit	2	2	2	28	81
OPM (%)	1%	1%	1%	9%	22%
Net Profit	1	1	0	18	58
Net Margin (%)	0%	0%	0%	6%	16%
ROE (%)	1	1.3	0.7	26	53.7
ROCE (%)	1.3	1.8	1.3	36.2	67.4
Dividend (Rs)	0	0	0	0	0
Debt to Equity (x)	0	0	0	0	0.1

Data Source: Ace Equity

Going forward, the company is confident of improving its revenue and profitability as demand for Ayurvedic medicines is going up gradually.

#3 Syschem (India)

Third on this list is Syschem (India). The company manufactures APIs and bulk drugs.

A diverse portfolio of DMFs is being developed using non-infringing processes and intellectual properties, which makes the company a significant player in the regulated market.

With the invention of new processes and molecules, the company expects to become a leading player in the Indian pharma sector.

In the past one year, shares of the company have gained over 30%.

Last year, the company's board approved a plan for expanding one of its existing facilities for manufacturing of amoxicillin and cephalexin. For this, it's setting up a parallel production line.

Coming to its financials, the company posted muted numbers in the most recent quarter due to inflationary concerns.

After repeat years of losses, the company turned around in FY23.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	977	886	1,224	1,210	1,404
Growth (%)	60%	-9%	38%	-1%	16%
Operating Profit	47	49	63	94	136
OPM (%)	5%	6%	5%	8%	10%
Net Profit	16	16	26	48	72
Net Margin (%)	2%	2%	2%	4%	5%
ROE (%)	5.7	5.6	8.3	13.9	18
ROCE (%)	7.8	7.7	10.1	15.1	21.9
Dividend (Rs)	0	0	0	0	0
Debt to Equity (x)	0.5	0.5	0.5	0.3	0.2

Data Source: Ace Equity

Promoters of the company have consistently added shares from the open market. In the December 2023 quarter, promoters upped their stake to 54% from 53.79% in September 2023.

#4 Medico Remedies

Fourth on this list is Medico Remedies.

The formulations manufacturing company manufactures tablets, capsules and dry syrups in both general and B-lactam categories.

Its manufacturing unit is located in Palghar, Maharashtra.

In the past one year, shares of the company have gained 31%.

Last year, the company forayed into ointments segment to pave the way into regulated markets in Europe and the United States.

Its new ointment production plant in Palghar has a capacity of three million tubes a month with a WHO-GMP certification.

Coming to its financials, the recent quarter's subdue performance was impacted by reduced business in Myanmar due to political unrest.

It has gradually improved margins over the past five years while also reducing debt.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	977	886	1,224	1,210	1,404
Growth (%)	60%	-9%	38%	-1%	16%
Operating Profit	47	49	63	94	136
OPM (%)	5%	6%	5%	8%	10%
Net Profit	16	16	26	48	72
Net Margin (%)	2%	2%	2%	4%	5%
ROE (%)	5.7	5.6	8.3	13.9	18
ROCE (%)	7.8	7.7	10.1	15.1	21.9
Dividend (Rs)	0	0	0	0	0
Debt to Equity (x)	0.5	0.5	0.5	0.3	0.2

Data Source: Ace Equity

The company won new orders from Somalia in a first in the first half of FY24 while its Sri Lanka business is also doing well.

It's currently expanding capacity in tablets and caps plant.

The company's diversified product basket with operations spread across multiple geographies is expected to take care of revenue guidance of 15-20% this year.

#5 Bafna Pharmaceuticals

Last on this list is Bafna Pharmaceuticals.

The company is engaged in the contract manufacturing for regulated markets and sale of generics in the semi-regulated markets.

The company derives close to 80% of its revenues from the export markets.

In the past one year, shares of the company have fallen around 5%.

As of December 2023, promoters of the company held 88.43% stake in the company.

In the past three years, the company has improved its financial performance amid favourable demand prospects for the lifestyle diseases segment, and due to its geographic diversification.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Net Sales	436	425	712	851	1,154
Growth (%)	-8%	-3%	68%	20%	35%
Operating Profit	-127	15	110	137	190
OPM (%)	-29%	3%	16%	16%	16%
Net Profit	-197	-19	58	52	113
Net Margin (%)	-45%	-4%	8%	6%	10%
ROE (%)	-64.4	-22.9	22.3	8.8	16.8
ROCE (%)	-20.9	-3	10.6	8.4	16.1
Dividend (Rs)	0	0	0	0	0
Debt to Equity (x)	2.2	-0.7	0.2	0.2	0.3

Data Source: Ace Equity

It enjoys established relationships with reputed pharma companies like Cipla and Strides Pharma Science.

Going forward, the company is banking on its expansion into new markets to improve margins.

Which Other Pharma Sector Penny Stocks Should You Watch Out?

The above 5 names performed well on financial metrics and passed on various criteria.

However, there are several more players involved in this space that may not have very impressive numbers but may still get rewarded due to their strong growth prospects.

Here are few names that you could track:

• Alembic Ltd.
• Ambalal Sarabhai Enterprises Ltd.
• Beryl Drugs Ltd.
• Colinz Laboratories Ltd.
• Emmessar Biotech & Nutrition Ltd.
• Gennex Laboratories Ltd.
• Ishita Drugs & Industries Ltd.
• Morepen Laboratories Ltd.
• Parnax Lab Ltd.
• Sandu Pharmaceuticals Ltd.
• Unick Fix-A-Form And Printers Ltd.
• Unjha Formulations Ltd.
• Veerhealth Care Ltd.
• Zenotech Laboratories Ltd.

For the entire list, check out the list of pharma stocks in India on our website.

In Conclusion

Given the sector's critical role in India's burgeoning economy, the potential for exponential gains makes these penny stocks worth the attention.

However, the lure of high rewards often comes entangled with risks.

Penny stocks in the pharma sector are typically volatile, have lower liquidity, and are susceptible to market sentiment shifts.

It is crucial for investors to engage in comprehensive due diligence before jumping in.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...