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  • Nov 30, 2022 - 4 Pharma Stocks to Watch Out for Potential Multibagger Returns

4 Pharma Stocks to Watch Out for Potential Multibagger Returns

Nov 30, 2022

4 Pharma Stocks to Watch Out for Potential Multibagger Returns

According to industry estimates, the Indian pharma industry is expected to grow to US$130 billion (Rs 10.6 trillion) by 2030.

In the coming decade, India could potentially become the leading provider of medicines across the globe as the country enjoys the benefit of low cost of manufacturing pharma products.

Other than the cost benefit, the onset of the pandemic triggered a massive growth journey for the Indian pharma sector. The demand for medicines, healthcare equipment, and related products increased exponentially over the coronavirus plagued years.

Earnings of top pharma companies boomed.

First, pharma companies strategically developed global alliances with multinational pharmaceutical businesses. This gave them better access to crucial drugs or new treatments.

Second, additional opportunities for the sector emerged through governmental collaborations and private players combining forces in the development of vaccines.

Overall, the pharma sector has a proven track record of offering stability, value, and consistent returns to investors.

In the last decade, the BSE healthcare index has risen at a compounded annual growth rate (CAGR) of 12% whereas the Nifty pharma has returned approximately 10.9%.

Today, let's take a look at four pharma stocks which could potentially deliver multibagger returns.

#1 Glenmark Pharma

First on this list is Glenmark Pharma.

Famous for its flagship product 'Candid cream', Glenmark set out on a journey to revolutionise the Indian pharmaceutical industry more than 40 years ago.

Today, it has expanded its footprint from brick and mortar to global research, and clinical trials.

Currently, Glenmark occupies a leadership position in the Indian market for the discovery of new molecules.

The company has operations in more than 80 countries around the globe.

In the first half of 2022, Glenmark delivered a weak performance due to a drug recall in the US.

Over the last two years, the company has underperformed primarily because of concerns about high debt on its books.

In 2022 so far, shares of Glenmark are down by 9.1%. While in the past five years, the stock has experienced a fall of 16.1%.

chart

Post August 2022, Glenmark has been able to sustain its share price over the Rs 400 mark as it is tackling debt issues proactively.

Long-term debt for Glenmark decreased to Rs 26 bn in the financial year 2021-22 as compared to Rs 39 bn during the fiscal year 2020-21.

With a focus on research, development and innovation, the company is evolving by expanding its product portfolio further.

It is adding a wide range of products on inflammation and metabolic disorders.

Glenmark is also working on introducing formulation across dermatology, internal medicine, respiratory, diabetes, paediatrics, gynaecology, ENT, and oncology via its specialty medicine business unit.

In the past five years, Glenmark has reported 5-year sales CAGR of 25% and a profit CAGR of -4.3% during the same period.

Financial Snapshot

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Gross Revenue 91,030.70 98,654.70 1,06,409.7 2,52,405.5 2,78,045
Growth (%)   8.40% 7.90% 137% 10.20%
Operating Profit 61,111 65,817.60 70,171.80 73,237.50 79,928.20
Operating Profit Margin (%)   7.70% 6.60% 4.40% 9.10%
Net Profit 8,038.70 9,249.90 7,759.70 9,700.90 9,936.50
Net Profit Margin (%)   15.10% -16.10% 25% 2.40%
Source: Equitymaster

Compared to its peers in the industry, the stock is available at cheap valuations with favourable risk reward.

To know more about Glenmark Pharma, check out its factsheet and latest quarterly results.

#2 Sun Pharma

Next on the list is Sun Pharma.

The company is a top player in the pharma sector, not just in India but in international markets too.

Sun Pharma is the fourth largest specialty generic pharmaceutical company in the world.

Among the top global pharmaceutical giants, Sun Pharma is the ninth largest pharma company in the USA generic medications market and second in the dermatology segment.

It currently has a global footprint across 100+ countries.

Sun Pharma offers a product portfolio of 300+ pharma brands, 29 of which regularly feature in the country's top pharma brand category.

Sun Pharma has reported 5-year sales CAGR of 5.6% and a profit CAGR of 5.8%.

Financial Snapshot

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Gross Revenue 5,12,002.3 5,63,374.4 5,94,243.8 6,14,621.0 6,71,914.1
Growth (%)   10% 5.5% 3.4% 9.3%
Operating Profit 1,90,638.3 2,11,969.4 2,36,070.5 2,48,080.6 2,83,029.5
Operating Profit Margin (%)   11.2% 11.4% 5.1% 14.1%
Net Profit 25,679.4 32,093.2 41,867.9 22,846.8 34,058.2
Net Profit Margin (%)   25% 30.5% -45.4% 49.1%
Source: Equitymaster

The company has a domestic market share of 8.2% primarily because it had the first mover advantage in the specialty pharma products segment.

For the last 6-7 years, Sun Pharma has heavily invested resources in R&D to build its specialty products range.

The in-licencing agreement with Merck for Tildrakizumab, a biologic for psoriasis early on in its journey was a key foundation building milestone. This triggered the company's clinical development, commercialisation, and development of a future R&D pipeline of specialty products.

By financial year 2020-21, Sun Pharma had already developed 12 specialty products.

In fact, it is one of the leading players in the chronic therapies segment in India.

Other key specialty segments include cardiology, neuropsychology, and gastroenterology related products that contribute 45% of the company's domestic revenue.

In addition to specialty products, Sun Pharma has diversified its portfolio with branded generics, complex generics, pure generics, and APIs.

Sun Pharma's efforts to branch out over the last five years is beginning to bear fruit and the valuations have captured the shift. The company has been able to differentiate itself with its unique footprint compared to other pharma stocks.

In 2022 so far, shares of Sun Pharma have gained over 24.7%. In the past five years, the stock has gained 84.7%.

chart

Increasing demand for chronic conditions and ailments will be the growth driver for Sun Pharma in the future.

If you want to bank on specialty pharma story, Sun Pharma is your best bet.

To find out more about Sun Pharma, check out its factsheet and latest quarterly results.

#3 Alembic Pharma

Next to feature on this list is Alembic Pharma.

A flagship company of the pioneering Alembic Group, Alembic Pharma comes with a 110+ years legacy and is the largest generic pharma company in India.

Bulk of its revenue is generated through international sales. 18% of its business comes from third-party API sales.

Alembic Pharma's revenue has grown from Rs 31,657 m in the financial year 2017-18 to Rs 53,563 m in 2021-22.

Alembic Pharma has reported 5-year sales CAGR of 11.1% and a profit CAGR of 4.1% during the same period.

Financial Snapshot

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Gross Revenue 31,308.1 39,346.9 46,057.6 53,931.4 53,057.8
Growth (%)   25.7% 17.1% 17.1% -1.6%
Operating Profit 22,446.2 29,419.8 35,663.8 41,357.9 38,593.5
Operating Profit Margin (%)   31.1% 21.2% 16% -6.7%
Net Profit 4,209.1 5,925.7 8,006.4 11,147.6 5,156.5
Net Profit Margin (%)   40.8% 35.1% 39.2% -53.7%
Source: Equitymaster

This is a result of proactive effort by Alembic to set up a strong presence in the US market with its diversified basket comprising 100+ products and 300+ different SKUs. The company also has over 200 filed ANDAs and over 140 approved ANDAs.

New product launches through its investment in R&D efforts backed by advanced technologies and partnerships with key players have kept Alembic ahead of its peers in regulatory markets.

The company's long-term partnerships are the key enablers of its growth strategy.

Led by the launch of a few FTFs (First to File), Alembic Pharma is eyeing US$400 m in sales from the US market by 2025.

Additionally, the company has also received approval for its first inhalation product, Formoterol Fumarate, which is expected to be launched in the first quarter of the financial year 2022-23.

Going forward, Alembic's lower capex will enable the company to get more debt off its books thus improving free cash flow generation and return ratios.

Over the last one year, Alembic Pharma's share price has moved down from Rs 777.8 to Rs 618.9, registering a loss of around 20.4%.

In 2022 so far, shares of Alembic Pharma have experienced a fall of 21%. In the past five years, the stock has gained 34.8%.

chart

As far as generic pharma is concerned, Alembic Pharma is leaving no stones unturned.

Check out Alembic Pharma's factsheet and latest quarterly results here.

#4 IPCA Laboratories

Last on the list we have IPCA Laboratories.

Incorporated in 1969, the company was one of the first to commission one of India's first modern pharma factories.

Over the last six decades, IPCA has evolved as an enterprise having a firm grip on its growth outlook primed by domestic business. Domestic business constitutes 43% of the company's overall business.

As a fully integrated pharma company, it has a kitty of over 350 formulations and 80 APIs that caters to the needs of several therapeutic segments.

It currently enjoys a 60% market share for dermatology products in India.

As a matter of fact, IPCA is one of the largest suppliers of these APIs worldwide with manufacturing leadership in over 12 APIs globally.

IPCA has an export footprint to over 100 countries worldwide.

IPCA Labs has reported 5-year sales CAGR of 12.2% and a profit CAGR of 30.2% during the same period.

Financial Snapshot

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Gross Revenue 32,835.7 37,731.8 46,487.1 54,199.9 58,297.9
Growth (%)   14.9% 23.2% 16.6% 7.6%
Operating Profit 22,794.2 26,553.5 31,636.2 38,469.6 40,059.6
Operating Profit Margin (%)   16.5% 19.1% 21.6% 4.1%
Net Profit 2,436.5 4,440.3 6,113.7 11,488.4 9,109.5
Net Profit Margin (%)   82.2% 37.7% 87.9% -20.7%
Source: Equitymaster

Much of IPCA's growth can be attributed to the company investing heavily in R&D which stood at 3% of their total turnover in the financial year 2021-22.

The company has also developed alliances through key partnerships and collaborations.

Some key investments include a 26.6% acquisition in Lyka Labs followed by Rs 250 m in ABCD Technologies with the goal to digitise healthcare infrastructure in India have been key growth drivers for IPCA.

With a long term view to expansion, IPCA is gearing up to hire 1,200 medical representatives to its workforce to push orthopaedic, dermatology and cardiovascular therapies out into the market.

In 2022 so far, shares of IPCA Labs have experienced a fall of 15.8%. In the past five years, the stock has gained 224.1%.

chart

IPCA Labs has a strong domestic pharma story in place and looks set to ride tailwinds in its favour.

To know more about IPCA, check out its factsheet and latest quarterly results.

What Next for India's Pharma Sector?

Higher cost pressures including raw material costs and freight costs drove down margins of pharma companies in the fourth quarter of 2021-22.

But the tide has now turned.

A strong revival of the sector is in the offing primarily as a result of increase in domestic and international demand.

Indian pharma companies are ramping up their growth momentum as more long-term opportunities emerge for them to capture a sizeable share of the global market.

This is compelling investors to rethink and revisit their investment in the Indian pharma sector that promises tremendous potential in the next 10 years.

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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...

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