What is aiding this renewed vigour across the pharma pack?
Overall, if we see most of the companies in the pharma sector have reported very good set of numbers. Divi’s is one example where all this quarter, it was not doing good because of higher base, but now they have started doing good in their custom synthesis business, which has aided margins back to 32% EBITDA margin as against earlier 25% to 28% kind of quarterly range. So, now 31% margin for Divi’s is a good thing as against the lower margin what it used to clock. And going forward, this kind of margins are sustainable because custom synthesis business is doing good and they also have good order pipeline.
Their Kakinada plant project is going to start commission from FY25 and also till FY26 the pipeline looks robust for Divi’s and therefore we feel that the worst is factored in the price and therefore Divi’s is one good company which has reported good set of numbers. Second is Torrent Pharma. Again, Torrent Pharma on a higher base of 31% EBITDA margin, it has clocked higher margins and again it is expected to continue.
I want to talk about, this big move has come in today, yes. But from current levels, listening to the management, looking at the numbers, where do you see maximum amount of re-rating possibility even from current levels? Which are your top two picks?
Yes, so we see maximum re-rating still happening in Lupin and second is Zydus Lifesciences. Lupin, we have seen it has rallied a lot, but we feel that there is still a lot of potential for the stock to re-rate because the Spiriva is doing good and at least for the next two to three years we do not expect major competitors coming in for the Spiriva drug, so though US FDA has not guided the exclusivity right, but still because of lack of competitors we feel that it will be a sole player in the Spiriva drug, which will continue to increase margins up of north of 21-22%.
Also, its Pithampur Unit 2 plant has been cleared and from there, now new product launches will aid growth in the US market. New product would be in the ophthalmic space and there are a couple of products which have exclusivity in the ophthalmic side.
So, again, Lupin we feel that there is still a good rally we can see even from the current market price. Second is on Zydus Life. Zydus Life, again North America and India, both the segments which contributes more than 70% of the total sales is expected to do good.
In North America, Revlimid is the key contributor and again, speciality drugs for Zydus Lifesciences that will keep on increasing EBITDA margins towards 29-30% and also in the valuation-wise Zydus Life is not trading at much higher valuations like Sun, therefore we feel that Zydus Life is also a second stock which can see good up move from here.
What about the likes of AstraZeneca, Pfizer, GSK, some of the MNC pharma companies, what is the outlook on how they are likely to perform or what their performance has been so far?
Yes, so MNC pharma companies are also expected to do good. We have Abbott and Sanofi in our coverage. So, Sanofi, also we know that there is corporate action of demerger going to take place and currently there is OTC margins embedded in the current price.
There is still a good significant value unlocking for the shareholders of Sanofi. Abbott is also doing very good as it continues to grow at 20% PAT, CAGR on a higher base and it continues to do double digit new product launches.
So, Abbott is also a very good pick in the domestic pharma side. Valuation-wise also Abbott continues to trade at 39-40 times on two years forward PE, which it fairly deserves because being a good contributor in the branded generic market and India company always gets higher valuation than the generic players.
Abbott’s premium valuation is expected to sustain. Glaxo is also expected to do good because of its new vaccine, Shingrix. Within one year of its launch, it has clocked a good sales of 50 crores, which is good and it is expected to maintain this kind of positive momentum.
Also, the NLEM impact, it is gone for these domestic pharma companies for at least next two to three years and price hike of 8% to 9% could be sustainable and all these companies have a good parental pipeline of new product launches.
Therefore, all these MNC companies, Sanofi, Abbott, AstraZeneca, Glaxo are expected to do good aided by new product launches.