Post on 24-Feb-2021
14 January 2021 Sector Update
Pharma
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Ample catalysts to sustain luster We see several growth catalysts across key markets and product categories
(inhalers, biosimilars, complex injectables) playing out over the next 2-3 years
for Indian pharma companies. The investments made over the last few years
leave them well placed to capitalise on these opportunities. With cost bases
pruned and operating leverage benefits, the sector is poised to grow at ~21%
earnings CAGR and witness ROCE improvement of 430bps to 15% over FY20-
23e. This, coupled with strong balance sheets (near debt-free), should support
valuations, in our view. BSE HC Index has outperformed Nifty by ~47% in the
past one year and trades at ~29x 1-yr forward, ~30% above its historical
average and ~22% premium to Nifty (vs. 10-yr average of 31%).
India biz remains attractive; chronic leads, vitamins strength could sustain
While chronic therapies continue to lead (Torrent, Lupin, Cipla to benefit), we
see Vitamins as a promising therapy that could sustain higher growth, led by
Covid induced changes in nutrition awareness and habits (Exhibit 17). The
recovery in acute therapies will further consolidate market share gains for
companies with strong therapeutic presence and leading brands (Alkem).
Progress on complex pipeline in US augurs well for growth and profitability
The share of injectables, specialty, biosimilars, and complex products in US
revenues is expected to increase from ~22% in FY20 to ~33% in FY23e, for our
covered universe. Improving quality of pipeline in the US will not only ensure
that the growth rates hold up better but will also drive higher profitability.
API business sees the turn of fortunes, PLI benefits a few years away
The strong performance in 1HFY21 (21% YoY for the covered universe) was
driven by factors such as customer stocking, pricing/currency benefits, which
have largely normalised. However, the broader demand environment remains
strong, driven by structural tailwinds (supply chain de-risk, PLI scheme), and is
likely to drive healthy growth over the next few years. PLI scheme benefits are a
few years away and will majorly benefit MSME players. Sun, Aurobindo, Lupin
are likely to have participated, among covered companies (Exhibit 35).
Covid vaccine monetisation offers upside potential, not factored in estimates
Vaccine monetisation can add material cash flows, although upsides will be for
limited period and contingent on several variables (pricing, competition,
capacity). We see three possible ways of monetising with varying degree of
lucrativeness: a) develop/ manufacture own vaccine; b) undertake third party
manufacturing; c) distribute vaccines. Among covered companies, Aurobindo,
Cadila and Dr. Reddy's are in the race to monetize this opportunity (Exhibit 36).
Cost savings, moderating investments to drive return ratios higher
Investments in R&D/capex have peaked and are likely to be more targeted
towards complex filings/capabilities going forward. With cost bases rationalised,
operating leverage benefits will drive margin expansion of ~350bps over FY20-
23e. We expect sector RoCE to improve by 430bps to ~15% in the same period.
Top picks are Alkem, Aurobindo, Cipla and Lupin
We like Alkem (the best play on acute recovery), Aurobindo (building complex
pipeline, Covid upsides), Cipla (strong India franchise, inhalers monetisation)
and Lupin (chronic focused portfolio, inhalers, operating leverage).
Stock Rating CMP TP
Sun Pharma ADD 510 645
Dr .Reddy's ADD 5,125 5,745
Cipla BUY 773 1,015
Aurobindo BUY 803 1,050
Cadila ADD 465 495
Torrent ADD 2,699 2,875
Lupin BUY 1,005 1,280
Alkem BUY 2,954 3,560
Sector RoCE (%)
Source: Companies, HSIE Research
Consensus Earnings Revision
Source: Bloomberg, HSIE Research, Nifty
Pharma Index
We roll forward our target price to
Mar’23 EPS (from Sep’22). Our
ratings remain unchanged.
Q3Preview – Exhibit 40, pg 16
Key Risks – Slowdown in IPM,
delay in plant resolutions and key
approvals, currency risks
Bansi Desai, CFA
bansi.desai@hdfcsec.com
+91-22-6171-7341
Karan Vora
karan.vora@hdfcsec.com
+91-22-6171-7359
21.8
18.516.6
14.2
10.0 9.6 10.1
13.8 13.7 14.5
0
5
10
15
20
25
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
Covid-led
cost savings
350
400
450
500
550
600
Jul-
19
Oct-
19
Jan
-20
Ap
r-2
0
Jul-
20
Oct-
20
Jan
-21
FY21e FY22e FY23e
Page | 2
Contents
Focus charts .............................................................................................................. 3
Key Catalysts to Monitor ........................................................................................ 5
India business: Recovery ahead, remains attractive ........................................... 6
US business: Moving up on complexity, profitability ...................................... 10
API: Structural tailwinds to drive longer-term outlook ................................... 12
Covid vaccines can provide a meaningful upside ............................................ 14
EU business to deliver high-single digit growth .............................................. 15
Q3 FY21 Preview: Recovery in India, Stable US ................................................ 16
Sector Valuations ................................................................................................... 17
Revision in Target Price ........................................................................................ 18
Pharma: Sector Update
Page | 3
Pharma: Sector Update
Focus charts Exhibit 1: IPM growth to be driven by price increase and
recovery in volumes
Exhibit 2: Chronic therapies continue to lead,
Vitamins likely to remain in focus
Source: HSIE Research, AIOCD AWACS Source: HSIE Research, AIOCD AWACS
Exhibit 3: US pharma market – Injectables are growing
faster than oral solids
Exhibit 4: Loss of exclusivity opens up pipeline
opportunities for generic companies
Source: Gland DRHP, MAT Sept'14-19, HSIE Research Source: Company, HSIE Research
Exhibit 5: Key areas of niche filings/ products under
development suggests improving pipeline for the US
Exhibit 6: Share of injectables, complex products,
specialty to increase for our coverage universe
Companies Niche Filings/ Products under development
Sun Specialty, Derma, Injectables
Dr. Reddy's Oncology, Injectables, Biosimilars
Cipla Inhalers, Specialty
Aurobindo Oncology, Injectables, Inhalers, Biosimilars
Cadila Oncology, Injectables, Biosimilars, Transdermal
Lupin Inhalers, Injectables, Biosimilars, Specialty
Source: HSIE Research, Companies
Source: HSIE Research, Companies, *Complex products ex-
injectables
5.5 3.2 2.4 2.6 1.8
-11.1-6.3
-1.9
4.5
2.2
-0.8
3.5 5.44.5 4.6 4.9
5.0
4.4
3.3
3.3 2.4
1.5 2.8 3.4
15.1
9.8
5.0
9.4 9.7
-5.21.1 6.4
-15
-10
-5
0
5
10
15
20
FY16
FY17
FY18
FY19
FY20
1Q F
Y21
2Q F
Y21
3Q F
Y21
%Volume Price New Product IPM Growth
10
6
7
14
8
9
8
11
8
7
12
-6
1
6
6
-6
-6
0
3
-6
-10 -5 0 5 10 15
Cardiac
Anti-Infectives
Gastro
Anti-Diabetic
Vitamins
Respiratory
Pain
Derma
CNS
Gynaec
YTD FY21 4 yr CAGR (FY16-20)
182
(50%)
200
(40%)
122
(33%)
230
(46%)
64
69
368
499
0
100
200
300
400
500
20
14
20
19
USD bnOral Solids Injectables Others
0.8 1.2 1.6 3.18.3 7.4 7.1 6.2 8.7 10.8
20.5 21.5 22.013.3
14.4 14.4 14.923.8
30.2
15.4
21.322.7 23.6
16.4
22.7 21.8 22.0
30.0
38.9
26.2
0
10
20
30
40
20
15
20
16
20
17
20
18
20
19
20
20
E
20
21
E
20
22
E
20
23
E
20
24
E
USD bn
Biologics Small Molecules
USD 139bn opportunity
78% 77% 71% 67%
4% 6%8%
9%
7% 7% 8%9%
11% 10% 12% 15%
0%
20%
40%
60%
80%
100%
FY20 FY21E FY22E FY23E
OSD & Others Complex products Specialty biz Injectables
Page | 4
Pharma: Sector Update
Exhibit 7: Vaccine plays - Cadila, Dr. Reddy’s and
Aurobindo within our coverage universe
Exhibit 8: We forecast 9% revenue CAGR over FY20-
23e for covered companies…
Company Vaccine
Name
India
capacity
(mn doses)
Stage of dev. Collaborator
Cadila ZyCov-D 100-150 by
2021 Phase-III
Dept. of
Biotechnology
Dr.
Reddy's Sputnik V - Phase-III
Gamaleya,
Russia
Aurobindo UB-612
220
(480 by
Jun'21)
Phase-II Covaxx
Aurobindo NA (Own
vaccine)
Development
stage
DBT-BIRAC
(funding)
Aurobindo NA Development
stage CSIR
Source: Companies, HSIE Research
Source: HSIE Research, AIOCD AWACS
Exhibit 9: …and ~350bps EBITDA margin expansion
leading to 21% earnings CAGR over FY20-23e….
Exhibit 10: …which is likely to drive RoCEs higher as
capex moderates
Source: HSIE Research, Companies Source: HSIE Research, Companies
Exhibit 11: Earnings revision cycle turned; consensus EPS
increased by ~7-14% in last the six months
Exhibit 12: BSE HC is trading at 1-yr fwd PE of 29x,
~22% premium to Nifty (vs. 10 yr avg. of 31%)
Source: Bloomberg, HSIE Research, Nifty Pharma Index Source: Bloomberg, HSIE Research
25%
30%
12%
6% -1%
10%10%
7%
11% 10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
-
400
800
1,200
1,600
2,000
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY
21
E
FY
22
E
FY
23
E
Rs bn
Revenues % growth
27%24%
26%
24%
20%
20% 20%
23% 23%24%
43%
1%
23%
0%
-27%
7% 9%
32%
15% 17%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
16%
18%
20%
22%
24%
26%
28%
30%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY
21
E
FY
22
E
FY
23
E
EBITDA Margin PAT growth (RHS)
Covid-led
cost savings
21.8
18.516.6
14.2
10.0 9.6 10.1
13.8 13.7 14.5
0
5
10
15
20
25
-
40
80
120
160
200
240
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21
E
FY
22
E
FY
23
E
%Rs bn Capex ROCE
350
400
450
500
550
600
Jul-
19
Oct
-19
Jan-
20
Ap
r-20
Jul-
20
Oct
-20
Jan-
21
FY21e FY22e FY23e
15
20
25
30
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Jan
-20
Jan
-21
1-yr fwd PE 10-yr avg. +1 SD
-1 SD +2 SD
Page | 5
Pharma: Sector Update
Key Catalysts to Monitor
Exhibit 13: Indian companies – key catalysts over the next two years for covered companies
FY22e FY23e FY24 and Beyond
Sun
Ramp up of Ilumya, Cequa Progress on Ilumya trials for Psoriatic
arthritis
Outcome of the SEBI probe on a whistleblower
complaint Ramp up of Ilumya in non-US markets
Increased profitability in the specialty
business
Few specialty products to achieve break-even Approval for depot inj.
Resolution of Halol OAI
Dr. Reddy's
Covid vaccine – progress of Sputnik V ph III
trials Approval for complex injectables in the US
Launch of gVascepa, approval of gNuvaring,
gCopaxone Rituximab filing in the US
Approvals for biosimilars in a regulated
market
Rituximab – Phase III studies to be completed
for US/EU Launch of Peg-Filgrastim in the US
Peg-Filgrastim approval -filed by partner
Fresenius in the US
Cipla
Approval/launch of IV Tramadol in US post-
NDA re-submission likely in Feb '21
Launch of the partnered inhaler (partner to
respond to FDA queries by end FY21)
Ramp up in Albuterol Launch of gAdvair Launch of other inhalers
Re-inspection/resolution of warning letter at
Goa Launch of gAbraxane
Aurobindo
Covid vaccine monetisation –Capacity ramp
up from 220mn to 480mn by June 21 Filings of all depot injectables
Progress on Phase III trials of Bevacizumab,
ophthal biosimilar
Approval for first MDI Inhaler (possibly
QVAR)
Launch of biosimilars, onco, inhalers &
complex injectables
Resolution of OAI status (unit I, VII, IX) and
WL (unit XI) PCV vaccine approval in India
Net debt free Peg-Filgrastim approval in EU
Cadila
Approval/launch of Covid vaccine – ZyCov-
D – 100-150mn capacity by 2021
Progress on potential Covid treatments –
Desidustat, Interferon alpha-2b Progress on 505b(2) initiatives Progress on NCE/ NBE molecules
Saroglitazar – complete trials for NASH and
PBC indications in the US
Targets to file 40+ complex generics incl inj.
per year in the US
Saroglitazar - Approval for NASH in the
US
Approval for transdermals
Saroglitazar – Ramp up in India
Resolution of Moraiya WL
Torrent
Further reduction in debt
Re-launches from Levittown facility Complex filings in Derma Progress on NCE molecule
Resolution of Dahej OAI status and WL at
Indrad
Lupin
Ramp up in gProAir, Solosec
gFostair launch in EU Filing of bEnbrel in the US Approval for complex injectables
Scale-up of bEnbrel in EU Approval for gBrovana Approval for Biosimilars
Peg-filgrastim BLA filing in US Launch of gSpiriva (not before June 2022),
gDoxil Launch of Ambisome by 2024
gSpiriva litigation outcome
Progress on cost initiatives
Alkem
Launch of the first biosimilar product in India
Chronic portfolio –significant room for MR
productivity to improve from ~Rs3mn in
FY21
Biosimilars – RoW markets in the near
term. Regulated markets by 2025
Improving FCF generation US business margins to increase from 10-
12% to 20%+
Source: HSIE Research, Companies
Page | 6
Pharma: Sector Update
India business: Recovery ahead, remains attractive
Domestic formulations business is the most sustainable and profitable part of
Indian pharma companies. Its contribution to overall revenues has increased from
~30% in FY13 to ~33% in FY20 for our covered companies.
The IPM growth in 1HFY21 (-2.2% YoY) was impacted by Covid-19, which is
expected to recover in 2HFY21, led by continued growth in chronic therapies and
recovery in acute therapies.
Chronic focused players are expected to grow ahead of the industry average.
Volume growth in chronic therapies is twice the IPM average of 2-3%. With a
recovery in acute therapies, companies with strong therapeutic presence and
leading brands are likely to consolidate their market share further.
We prefer companies such as Alkem (volume-driven growth, leadership in acute),
Lupin and Cipla (high chronic exposure) for their ability to grow ahead of peers
among covered companies.
Exhibit 14: IPM growth to be driven by price increase
and recovery in volumes
Exhibit 15: We forecast 10% revenue CAGR for India
business over FY20-23e for covered companies
Source: HSIE Research, AIOCD AWACS Source: HSIE Research, Companies
Exhibit 16: Companies with high contribution from chronic/ therapeutic leadership
are best placed to gain market share
Particulars
FY15-
20
CAGR
FY20-
23e
CAGR
India - %
of sales
Chronic
exposure
Contributi
on from
leading
therapies
Leading therapies (among
top 3 ranks)
Sun 7.7% 8.2% 30% 45.4% 58.8%
Rank 1 - Cardiac, CNS,
Pain; Rank 2 - GI; Rank 3 –
Derma
Dr. Reddy's 10.1% 14.0%* 17% 26.7% NA NA
Cipla 6.7% 14.1% 39% 45.4% 56.4% Rank 1 - Respiratory; Rank
3 - Anti-Infectives
Cadila 6.8% 8.3% 26% 31.2% 28.3% Rank 3 - Pain, Gynaec,
Respiratory
Torrent* 16.9%* 10.5% 44% 56.2% 43.4% Rank 2 - Cardiac, Vitamins
Lupin 11.6% 9.1% 34% 58.5% 59.7% Rank 2 - Respiratory; Rank
3 - Anti-Diabetics, Cardiac
Alkem 13.1% 10.4% 65% 15.1% 69.4% Rank 1 - Anti Infectives;
Rank 3 - GI, Vitamins
Source: HSIE Research, Companies, AIOCD AWACS, *includes acquisitions
5.5 3.2 2.4 2.6 1.8
-11.1-6.3
-1.9
4.5
2.2
-0.8
3.5 5.44.5 4.6 4.9
5.0
4.4
3.3
3.3 2.4
1.5 2.8 3.4
15.1
9.8
5.0
9.4 9.7
-5.21.1 6.4
-15
-10
-5
0
5
10
15
20
FY
16
FY
17
FY
18
FY
19
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
%Volume Price New Product IPM Growth
12%10%
6% 7%
14%
7%
13%11%
0%
2%
4%
6%
8%
10%
12%
14%
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21
E
FY
22
E
FY
23
E
%
GST
FDC ban,
Demonetization
Covid
IQVIA projects 8-11% growth
over 2020-24e for India Pharma
Market
Torrent, Lupin, Cipla – chronic
focused portfolio to outperform
Alkem – leadership in Acute
will drive its market share
higher
Page | 7
Pharma: Sector Update
Exhibit 17: Therapy performance - Chronic to lead, Vitamins strength to continue
Source: HSIE Research, AIOCD AWACS
Chronic focused players are likely to grow ahead of IPM
Exhibit 18: Key players in chronic therapies and their market share trends
Market Share Cardiac Anti-Diabetics CNS
Mar-13 Mar-20 Mar-13 Mar-20 Mar-13 Mar-20
Indian companies
Sun 12.4% 11.1% 10.0% 7.7% 22.1% 22.7%
Lupin 5.6% 7.1% 7.9% 9.1% 2.9% 3.0%
Torrent 8.4% 7.5% 2.0% 2.7% 7.5% 7.5%
Glenmark 3.0% 5.0% 0.5% 2.1% 0.2% 0.1%
Zydus 5.1% 4.8% 0.3% 0.7% 1.6% 0.7%
Cipla 5.0% 4.8% 0.7% 0.6% 2.0% 2.7%
Alkem 0.4% 1.0% 0.4% 1.5% 2.3% 3.2%
Eris LS 1.6% 2.0% 1.3% 2.8% 2.1% 1.2%
Dr. Reddy’s 3.3% 2.4% 2.0% 1.7% 3.7% 2.7%
Abbott* 5.3% 3.7% 18.7% 12.5% 12.5% 8.6%
Sanofi India 4.3% 2.7% 5.3% 6.8% 3.4% 2.6%
Source: HSIE Research, AIOCD AWACS, *including unlisted entities
Acute recovery puts Alkem in pole position
Exhibit 19: Key players in acute therapies and their market share trends
Market Share Anti-Infectives Gastro-Intestinal Pain/Analgesics
Mar-13 Mar-20 Mar-13 Mar-20 Mar-13 Mar-20
Sun 6.8% 6.3% 8.3% 9.0% 9.3% 8.0%
Alkem 9.1% 10.2% 4.5% 5.6% 1.7% 3.7%
Cipla 7.1% 7.5% 3.0% 2.6% 1.7% 2.1%
Dr. Reddy’s 1.1% 1.5% 4.1% 4.9% 2.7% 3.5%
Torrent 1.9% 1.0% 3.9% 4.5% 2.7% 2.9%
Lupin 5.1% 3.8% 2.3% 2.4% 1.7% 2.1%
Ipca 0.7% 0.8% 1.2% 0.8% 4.4% 6.0%
Cadila 0.6% 0.5% 4.1% 3.2% 0.0% 0.0%
Abbott* 5.3% 4.0% 7.2% 9.6% 4.8% 4.0%
GSK 6.1% 4.8% 2.8% 1.0% 6.1% 3.8%
Source: HSIE Research, AIOCD AWACS, *including unlisted entities
IPM grew by 1% in YTDFY21
Cardiac, Anti-diabetes and
Vitamins were the top 3
performing therapies in YTD
FY21
We see Vitamins as promising
therapy that could sustain its
higher growth driven by Covid
induced changes in nutrition
awareness and habits
Acute therapies - we expect
growth to recover in 2HFY21
and rebound strongly in FY22
Chronic segment has grown
at ~13.5% and outperformed
the IPM by 250+bps over the
last 7 years
Chronic segment accounts for
~33% market share in IPM
Acute segment has grown at
9.3% CAGR and under-
performed the IPM by ~165bps
over the last 7 years
Acute segment forms ~47% of
IPM
10
6
7
14
8
9
8
11
8
7
12
-6
1
6
6
-6
-6
0
3
-6
-10 -5 0 5 10 15
Cardiac
Anti-Infectives
Gastro
Anti-Diabetic
Vitamins
Respiratory
Pain
Derma
CNS
Gynaec
YTD FY21 4 yr CAGR (FY16-20)
Page | 8
Pharma: Sector Update
Vitamins – growth trends likely to sustain beyond Covid
Multivitamins, Vitamin C, and Vitamin D have seen increased demand during
1HFY21 as these are considered effective prophylactic measures against Covid.
We expect companies like Alkem, Pfizer, and Torrent with leading brands to
consolidate their share in respective product categories further.
Exhibit 20: Top 3 brands in key vitamins category
Brands Company MAT Mar'20 4-yr CAGR 1H FY21 Growth
Multivitamins
Zincovit Apex 2,281 4.9% 65.9%
A To Z NS Alkem 1,456 15.6% 44.4%
Bevon Emcure 1,393 15.3% 27.0%
Methylcobalamin Combinations
Nurokind Plus RF Mankind 990 6.9% 6.8%
Renerve Plus Eris LS 884 9.2% 12.4%
Nuhenz La Renon 785 20.7% -34.7%
Calcium Products
Shelcal Torrent 2,238 11.3% 17.4%
Gemcal Alkem 925 1.9% -15.0%
Shelcal XT Torrent 841 NA 1.0%
Other Vitamins
Nurokind LC Mankind 1,024 22.0% -0.6%
Uprise D3 Alkem 720 6.0% 55.9%
Calcirol Cadila 613 1.0% -1.1%
B Complex
Becosules Pfizer 3,287 9.5% 22.2%
Neurobion Forte P&G Health 1,053 11.2% 17.7%
Polybion P&G Health 456 5.4% -100.0%
Source: HSIE Research, AIOCD AWACS
Exhibit 21: Vitamins - Company-wise performance
Company MAT Mar'20 4-yr CAGR Mkt. share Ranks
FY16 FY20 FY16 FY20
Abbott* 9,357 10.6% 6.8% 7.6% 1 1
Mankind 8,027 9.8% 6.0% 6.5% 2 2
Alkem 6,260 8.7% 4.9% 5.1% 3 3
Torrent 5,505 12.8% 3.7% 4.5% 4 4
Sun 4,812 12.1% 3.3% 3.9% 6 5
P&G Health 4,504 7.6% 3.7% 3.7% 5 6
Pfizer 4,069 8.6% 3.2% 3.3% 7 7
Danone 3,649 21.8% 1.8% 3.0% 17 8
Emcure 3,545 9.4% 2.7% 2.9% 9 9
Macleods 3,409 8.9% 2.6% 2.8% 11 10
Dr. Reddy’s 2,354 3.4% 2.2% 1.9% 14 16
Lupin 2,106 3.2% 2.0% 1.7% 16 19
Zydus 1,486 4.5% 1.4% 1.2% 23 24
Cipla 857 -4.8% 1.1% 0.7% 25 35
Source: HSIE Research, AIOCD AWACS, *including unlisted entities
Vitamins account for 8.8%
market share in IPM (MAT
Nov '20)
Top brands – Becosules,
Zincovit, Shelcal and A to Z
NS
Alkem, Pfizer, Torrent are
likely to gain market share
given they have leading
brands in key categories
Vitamins have grown at ~8-
9% CAGR over FY16-20
Top 5 players have gained
market share
Torrent and Sun have
outperformed peers in the past
Alkem has further gained
75bps market share in YTD
FY21 to 5.8%
Page | 9
Pharma: Sector Update
Online pharmacies gain traction, limited impact on
manufacturers in the near to medium term
The online pharmacy players cater to the entire outpatient market in India
comprising – (a) pharma (USD20bn); (b) diagnostics (USD8bn); (c) consultation
(USD2-3bn). E-pharmacies have 3% market share in the drug consumption market
(~USD20bn).
Their market share is expected to increase to 7-8% in FY25 and 10-12% by FY30.
Overall, GMV of online players is expected to grow at 35% CAGR from
~USD0.9bn in FY20 to ~USD4bn by FY25.
Exhibit 22: Healthcare spends to grow 2.5x in 5 years Exhibit 23: e-pharmacy to grow 4x in 5 years
Source: Red Seer, HSIE Research Source: FICCI, Frost & Sullivan, HSIE Research
Impact on pharma manufacturers as they gain scale o The pharma supply chain in India is highly fragmented with 80-85k
distributors across the country with the largest distributor having only 2%
market share which compares unfavourably with most major economies in the
world (~95% for top 3 in the US, ~60% for top 7 in EU and ~30% for top 3 in
China).
o Volume-linked discounts offered by pharma manufacturers have led to margin
expansion for large players such as PharmEasy in the last five years. However,
given that the e-pharmacies account for only 3% of the market, the impact on
pharma manufacturers is limited today. Hence, even with their rising scale, we
expect limited impact on pharma companies' profitability, given that offline
stores are likely to dominate the market in the near to medium term.
0.9
4.0
0
1
2
3
4
FY20 FY25e
USD bnIndia e-Pharma Market
Household users (mn) 9 70~8x
E-pharmacies account for 3%
share of the drug consumption
market and their market share
is likely to increase to 10-12%
by FY30
Given fragmented distribution
and domination of offline
stores, e-pharmacies are
unlikely to impact
manufacturers' margins in the
near to medium term
135
353
0
100
200
300
400
FY20 FY25e
USD bn
India's Healthcare exp.
Page | 10
Pharma: Sector Update
US business: Moving up on complexity, profitability
Indian companies have made good progress in transitioning their portfolio
offerings from plain vanilla generics to niche/ complex generics today (Derma,
injectables, inhalers). The recent approval of Albuterol (Lupin/Cipla), biosimilars
(Biocon) validates capabilities on this front. Sun has further moved up the value
chain with its innovation-led specialty initiatives (yet to break-even). Incremental
investments in R&D are towards developing complex/ differentiated/ innovation-
led products.
The share of injectables, specialty, and complex products in US revenues is
expected to increase from ~22% in FY20 to ~33% in FY23e, for our covered
universe. We expect improving quality of pipeline in the US will not only ensure
that the growth rates hold up better but will also drive higher profitability for
Indian companies.
We forecast 6% sales CAGR in the US over FY20-23e vs. 3% over FY15-20. With a
ramp-up in speciality and increased complex approvals, we expect profitability to
improve and grow at a higher pace.
Exhibit 24: US generics market is expected to post
single-digit growth
Exhibit 25: Loss of exclusivity (LoE) presents a
growth opportunity for generic companies
Source: Lupin, HSIE Research Source: Alkem, HSIE Research
Exhibit 26: Pending ANDA pipeline remains strong for
Indian companies
Exhibit 27: R&D spends have been calibrated, with a
focus on developing complex products
Source: Companies, HSIE Research Source: Companies, HSIE Research
7771 69 73
79 83 86
0
20
40
60
80
100
2016 2017 2018 2019 2020E 2021E 2022E
USD bn
0.8 1.2 1.6 3.18.3 7.4 7.1 6.2 8.7 10.8
20.5 21.5 22.013.3
14.4 14.4 14.923.8
30.2
15.4
21.322.7 23.6
16.4
22.7 21.8 22.0
30.0
38.9
26.2
0
10
20
30
40
20
15
20
16
20
17
20
18
20
19
20
20
E
20
21
E
20
22
E
20
23
E
20
24
E
USD bn
Biologics Small Molecules
USD 139bn opportunity
7292
66
180
96
47
156
56
0
40
80
120
160
200
Su
n
Dr.
Red
dy
's
Cip
la
Au
rob
ind
o
Ca
dil
a
To
rren
t
Lu
pin
Alk
em
6%
7%
8%
8%8%
7%
7%
7% 7% 7%
5%
6%
7%
8%
9%
-
20
40
60
80
100
120
140
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21
E
FY
22
E
FY
23
E
Rs bnR&D R&D as a % of sales
We expect Dr. Reddy's, Lupin
and Alkem to clock double-
digit growth over FY20-23e
Share of injectables, specialty,
and complex products revenues
is expected to increase from
~22% in FY20 to ~33% in FY23e
for coverage universe
Page | 11
Pharma: Sector Update
Exhibit 28: US pharma market – Injectables growing
faster than oral solids
Exhibit 29: Volume and price growth favourable for
injectables
Source: Gland DRHP, MAT Sept'14-19, HSIE Research Source: Gland DRHP, MAT Sept'14-19, HSIE Research
Exhibit 30: Share of injectables, complex products,
specialty to increase for our coverage universe
Exhibit 31: Key areas of niche filings/products under
development suggest improving pipeline quality
Companies Niche Filings/ Products under development
Sun Injectables, Specialty, Ophthal, Derma
Dr. Reddy's Oncology, Injectables, Biosimilars
Cipla Inhalers, Specialty
Aurobindo Oncology, Injectables, Inhalers, Ophthal,
Biosimilars
Cadila Oncology, Injectables, Biosimilars, Transdermal
Lupin Inhalers, Injectables, Biosimilars, Specialty,
Ophthal
Source: Companies, HSIE Research
Source: Companies, HSIE Research, Complex products ex-injectables
Exhibit 32: US business outlook for covered companies
Company US - % of
sales
FY20 (USD
mn)
FY15-20
CAGR
FY20-23e
CAGR
Pending
ANDAs Key Growth Drivers
Sun 33% 1,487 -7.9% 1.7% 72 Specialty business
Dr. Reddy's 39% 910 -3.0% 13.2% 92 Injectables, complex products
Cipla 23% 547 29.9% 8.3% 66 Inhalers and niche launches
Aurobindo 50% 1,622 15.0% 3.2% 180 Natrol divested, injectables to drive growth
Cadila 44% 906 10.3% 3.3% 96 Transdermals, injectables
Torrent 19% 207 8.8% 3.3% 47 Third-party launches, derma products
Lupin 38% 800 -2.1% 12.1% 156 Inhalers, specialty
Alkem 26% 309 23.3% 13.1% 56 OSD launches
Source: Companies, HSIE Research
182
(50%)
200
(40%)
122
(33%)
230
(46%)
64
69
368
499
0
100
200
300
400
50020
14
2019
USD bnOral Solids Injectables Others
78% 77% 71% 67%
4% 6%8%
9%
7% 7% 8%9%
11% 10% 12% 15%
0%
20%
40%
60%
80%
100%
FY20 FY21E FY22E FY23E
OSD & Others Complex products Specialty biz Injectables
-1.9%
6.9%
-6.2%
3.9%
6.2%
8.2%1.9%
13.6%
1.5%
-10%
-5%
0%
5%
10%
15%
Oral Solids Injectables Others
Vol. Growth Price Growth
Page | 12
Pharma: Sector Update
API: Structural tailwinds to drive longer-term
outlook
Demand visibility improved; however, 1HFY21 growth to moderate
The API business growth in 1HFY21 (~21% YoY) for the covered universe was
partially driven by higher volumes on the back of increased customer stocking,
better pricing environment and currency benefits. Some of these trends have
normalised, moderating the growth expectation for coming quarters.
The overall demand outlook for Indian companies has improved as a) globally
companies attempt to de-risk their supply chain, and India stands to benefit given
it has proven manufacturing capabilities; b) PLI scheme by the government aims to
localise the manufacturing of critical KSM/ intermediaries/ APIs to reduce
dependence on China. We forecast 12.4% CAGR over FY20-23e vs. 3.5% CAGR
over FY15-20 for the covered companies' API business.
Indian API industry is fragmented and dominated by MSME players
The Indian bulk drug (API and intermediates) industry is estimated to be ~Rs963bn
in size (Domestic consumption – Rs660bn, Exports – Rs303bn). The industry ranks
third globally, next to China and Italy. The API industry is mostly fragmented with
1,500 manufacturing plants dominated mainly by MSMEs. As per KPMG report,
the top 14-16 players account for ~16-17% of the market.
China has an edge, its API costs are 20-30% lower than India’s
China accounts for 20% of global API production. They have more than 7,000 API
manufacturers with an annual production capacity exceeding 2mn tonnes while
the Indian industry has around 1,500 plants that manufacture APIs. Chinese APIs
are ~20-30% cheaper than Indian API cost.
Exhibit 33: China API cost is ~20-30% lower than India
Source: HSIE Research, KPMG/ CII
1HFY21 growth at 21% YoY,
unlikely to sustain
We forecast 12% CAGR
over FY20-23e for covered
companies vs. 3.5% CAGR
in the last five years
The top 14-16 players in
India account for ~16-17%
of the market
China API costs are 20-
30% lower than India
50.0
81.1100.1 95.6 95.6
69.0
6.0
19.0
1.5 6.0 4.4
7.513.5
7.511.6
16.0
0
20
40
60
80
100
120
China API
Production
Cost
Raw Material Electricity Labour Other Costs India API
Production
Cost
UnitsRaw Mat Electricity Labour Other Costs
25-30%
expensive
than China
~20%
expensive
than China
1.8x lower
than China~30%
expensive
than China
Page | 13
Pharma: Sector Update
PLI scheme to reduce dependence on China; benefits are few years out
India imported USD3.56bn worth of bulk drugs in 2018-19 of which ~70%
(USD2.4bn) was from China (as per Trade Promotion Council of India). The
dependence is very high for certain fermentation-based APIs (antibiotics), vitamins
and many key starting materials (KSM).
To reduce this dependence on imports, the government approved a) Rs69.4bn for a
production linked incentive (PLI) scheme for promoting domestic manufacturing
of critical KSMs/ Intermediates and APIs in the country; b) Rs30bn to set up three
bulk drug parks with common infrastructure facilities over the next five years. The
scheme has identified 41 products covering 53 bulk drugs eligible for the incentives
between 5-20% for 6 years and is expected to generate incremental sales of ~Rs
464bn over the next 6-8 years (as per Ministry of Chemicals and Fertilizers).
Exhibit 34: Key APIs/KSMs under PLI scheme
Particulars
Potential
Incentive
(Rs cr)
% Min. capacity
p.a. (MT)
Max.
selections
(nos.)
Incentive
rate
4 Fermentation based KSMs
Penicillin G
3,600 52%
5,000 2 5-20%
7-ACA 1,000 2 5-20%
Erythromycin Thiocyanate (TIOC) 800 2 5-20%
Clavulanic Acid 1.5 lakh kg 2 5-20%
10 Fermentation based niche KSMs/ APIs 1,000 14% 2-200 2 each 5-20%
4 Chemical Synthesis based KSMs 960 14% 800-8,000 4 each 10%
23 Chemical Synthesis based KSMs/ APIs 1,380 20% 2-750 4 each 10%
Source: HSIE Research, Dept. of Pharmaceuticals
Listed players focus on vertical integration, few to avail PLI benefits
Among the covered universe, Aurobindo, Lupin and Sun are likely to have
participated in the PLI scheme for certain products.
Exhibit 35: Improved outlook for API business – Sun, Aurobindo and Lupin likely to have participated in the PLI
Company API - %
of sales FY20
FY15-20
CAGR
1HFY21
YoY
FY20-23e
CAGR Comments
Sun 6% 19,159 14.1% 14.5% 11.3%
-Primary aim is to become fully vertically integrated into the formulations biz
-Volumes have doubled over the last 4 yrs but majorly consumed captively
-PLI – will evaluate products other than antibiotics with the primary aim of
vertical integration and rest for third party sales
Dr. Reddy's 15% 25,747 -0.1% 46.5% 19.4%
-Grow business in Asia markets
-Complement growth in CDMO opportunities
-Seeking opportunities where the company can act as an alternate supplier
- R&D investment in API will continue, No Capex plans
- PLI scheme is primarily for antibiotics, no plans to invest in it
Cipla 4% 7,510 3.8% 10.0% 8.3%
-Focus is on big APIs and to reduce dependence on China
- List of APIs targeted to optimise costs or provide a different product category
that could add to third party sales as well
Aurobindo 13% 30,834 2.6% 4.6% 5.5%
-Muted growth in 1HFY21 compared to others as ~50-55% of its APIs are
antibiotics which witnessed muted demand
-Planning capacity expansion for external supplies, internal supplies are secured
-Likely to avail PLI for few interesting opportunities, will require separate
investments
-PLI scheme won't shift the entire supply chain in-house as it only consists of 53
products (which itself will take 2-3 yrs) and the co's portfolio is much larger
Cadila 3% 4,530 4.0% 66.9% 18.4% -Planned capacities/ capabilities will drive strong growth momentum
-APIs are primarily used captively, external sales likely to grow in double digits
Lupin 9% 12,999 1.7% 19.7% 14.6%
-Strong presence in Cephs and Penicillins
-Identified 6-7 products including fermentation-based products to ramp up (some
of which are also in the PLI scheme), looking forward to investing in those to
reduce the over-dependence
Source: HSIE Research, Companies
GoI has received ~215
applications for the PLI
scheme from 83 bulk drug
manufacturers, out of
which 136 application are
to be approved
Out of the total allocation
of Rs 6,940cr for the PLI
scheme, Rs 4,600cr will be
earmarked for
fermentation-based
products and Rs 2,340cr for
chemical synthesis products
Aurobindo, Sun and Lupin
likely to have participated
Page | 14
Pharma: Sector Update
Covid vaccines can provide a meaningful upside
Vaccine monetisation can add material cash flows for a limited period. We haven't
factored upsides in our estimates as this would be contingent on several variables such
as final approval, pricing, competition, manufacturing capacity/partnerships.
Cadila (ZyCov-D) and Dr. Reddy's (Sputnik V) could benefit if the respective vaccines
get approved in India. Aurobindo is developing its own vaccine (to be rolled out in
2021) and is also building manufacturing capacities for third-party manufacturing. We
see three possible ways of monetising with varying degree of lucrativeness: a) develop/
manufacture own vaccine; b) undertake third party manufacturing; c) distribute
vaccines.
Exhibit 36: Covid vaccines – progress on development and manufacturing capacity for Indian players
Company Vaccine Capacity (mn
doses) Collaborator
Stage of
development Comments
Cadila ZyCov-D 100-150mn by
CY2021 Dept. of Biotechnology Phase-III
DNA vaccine; received DGCI approval to start
Phase-III trials, to hire contract manufacturers
for additional 50-70mn doses
Dr. Reddy's Sputnik V - Gamaleya, Russia Phase-III
Vaccine based on Human adenoviral vector-
based platform; recently met primary
endpoint of safety in Phase-II trial in India,
right to distribute 100mn doses in India
Hetero Biopharma Sputnik V 100+mn Gamaleya, Russia Phase-III Human adenoviral vector-based platform
Serum Institute of
India (SII)
Covishield 500-600mn Astra Zeneca, Oxford Phase-II/III
The vaccine is based on the common cold virus
or the adenovirus that is found in chimpanzees;
Approved by DGCI for 'Emergency use'
NVX-CoV2373 1,000mn Novavax Phase-III Protein sub-unit vaccine
Bharat Biotech
Covaxin 150mn
(aims 700mn p.a.) ICMR Phase-III
Inactivated virus vaccine; approved by DGCI
for 'Emergency use in clinical trial mode.'
NA 500mn
University of
Washington School of
Medicines at St. Louis
Phase-I/II
Based on Chimp-Adenovirus; intra-nasal single
dose vaccine, quicker & easier to administer,
stronger and longer immunity, eco-friendly
NA NA Thomas Jefferson, USA Adv pre-clinical* Based on inactivated rabies vector platform
Aurobindo
UB-612
220mn
(480 by June '21)
Covaxx Phase-II/III
1st 'Multitope Peptide' based vaccine
Non-exclusive rights to manufacture & supply
Covaxx's vaccine to India and UNICEF.
Completed phase I
NA (Own) DBT-BIRAC (funding) Development
stage
Based on its proprietary replication competent
attenuated r-VSV, VesiculoVax platform,
Expected roll out in 2021
NA CSIR Development
stage Aurobindo will do trials and manufacture
Biological E NA NA MIT, USA Phase-I/II Recombinant Protein Antigen based vaccine
Genova (Emcure) HGCO 19 NA HDT, USA Phase-I/II* mRNA based vaccine
Mynvax NA NA IISc, Bangalore NA Recombinant Protein Antigen based vaccine
Indian
Immunologicals NA NA
Griffith University,
Australia NA Innovative codon-deoptimisation technology
Source: Ministry of Health and Family Welfare, HSIE Research, *data as of Dec '20
Exhibit 37: Covid drugs sales in India: ~20-25% of opportunity could sustain in the medium term
Covid Drugs Companies FY20 1H FY21 Comments
Hydroxychloroquine Ipca, Cadila 1,627 1,208 Approved for mild cases and as prophylactic
Favipiravir Glenmark 0 2,824 Oral antiviral for mild to moderate cases
Remdesivir Mylan, Cadila, Cipla 0 1,213* Injectable approved for hospital use
Tocilizumab Cipla 10 537* Injectable approved for hospital use
Dexamethasone Cadila 1,046 676* For cases in late stage, patients on ventilation
Methylprednisolone Pfizer, Sun 2,708 1,317 Used as anti-inflammatory drug
Azithromycin Alembic, Cipla 7,228 3,741 Used for its antiviral properties
12,619 11,520
Source: AIOCD AWACS, HSIE Research, *AIOCD data does not capture the hospital sales, and hence does not reflect true market size
Vaccine plays within
coverage - Cadila, Dr.
Reddy's and Aurobindo
Page | 15
Pharma: Sector Update
EU markets to deliver high single-digit growth According to IQVIA, the European generic market was estimated to be USD 99bn in
2019 and is expected to grow at a CAGR of ~5.3% from 2019-2024e to reach USD 128bn.
Germany, France, Italy, UK and Spain are the biggest markets within Europe.
Exhibit 38: Snapshot of generic penetration in key European markets
Country Mkt. size
(USD bn)
Growth
(2014-19)
Generic
penetration
(2019)
Market type and drivers of generic penetration
France 35 1.8% 74% -Combination of tender and pure generics market
-Pharmacy level substitution with generic equivalents
Germany 46 4.4% 77% -Tender driven business tends to favour generic players
-Drug prices for branded drugs forced downwards
Italy 32 6.5% 57% -Higher margin to pharmacies while dispensing generics
-Customers have preference for brand
Spain 24 6.3% 60%
-Generic pharmacy market with some elements of the
tender, Customers have preference for brand
-Implemented mandatory INN prescriptions in 2011
transforming the country into a fully unbranded market
-Shortened applications for generics
UK 26 6.4% 80% -Tender driven market
-Strongly encouraged INN prescriptions
Source: Gland DRHP, HSIE Research, MAT Sept' 14-19, INN – International Nonproprietary Names
Exhibit 39: Europe business growth drivers – enhancing presence and leveraging R&D to launch products
Company EU - % of
sales FY20 (Rs mn) 4-yr CAGR FY20-23e CAGR Comments
Sun 9% 30,430** 4.1% 8.9%** -Presence in Western (developed), Eastern and Central European
markets. Key market – Romania
Dr. Reddy's 7% 11,707 10.9% 15.2%
-Enhance EU presence from EU-5 to EU-12
-Key markets - Germany, UK. New markets - France, Italy, Spain,
Austria (Azacitidine launch)
-Scale-up in hospital segment across markets
-Leverage R&D and launch products across markets
Cipla 5% 8,130 7.6% 14.4% -Focus on top 4 ‘Direct-to-Market’ countries in EU.
-20% market share in FPSM pMDI market in Europe
Aurobindo 26% 59,218 17.3%# 6.0%
-Presence in 11 countries (among top 10 in 7), mostly via Actavis and
Apotex acquisitions. Key Markets – France, Spain, UK, Italy,
Netherlands.
-Plans to launch 250+ oral solid products in 3 years , injectables and
biosimilars
-Increased outsourcing to India, the launch of high-end injectables to
drive margins higher
Cadila 1% 1,957 -9.8% 10.7% -Base volumes and new launches to drive growth
Torrent 12% 9,470 9.9% 7.7%
-5th largest generic pharma player in Germany and no. 1 Indian
company in Germany
-Focus to expand via new launches in the tender as well as non-
tender business
Lupin* 8% 12,364 9.3% 9.1%
-Launched 1st biosimilar Nepexto (bEnbrel)in Q2 FY21 in Germany
(key market) with positive CHMP opinion for all indications and in
Finland, Croatia in Oct '20, to be launched in France and Belgium by
Jan '21
-Key therapies - ARVs, Inhalation and CNS
Source: HSIE Research, Companies, * includes EMEA sales, #acquisitions led, **EU revenues derived from subsidiaries financials
EU is expected to grow at 5%
CAGR over 2019-24e
EU markets are a
combination of tender,
generics, branded generics
Presence in tender, hospital,
retail and OTC helps in
gaining scale
Companies are
Page | 16
Pharma: Sector Update
Q3 FY21 Preview: Recovery in India, Stable US
We expect Q3FY21 sector revenues to grow at 9% YoY and 1% QoQ led by healthy
growth in India business (Covid drugs, strong trade generics, chronic therapies),
and steady US business (+2% QoQ) driven by stable pricing environment and ramp
up in key products (albuterol, specialty).
We forecast EBITDA margin to expand by ~309bps YoY and decline by 92bps QoQ
to 23.1% as export incentives withdrawal offsets cost savings (increased
sequentially but not at normal levels yet).
Exhibit 40: Q3FY21 quarterly summary forecast for covered companies
Rs mn Revenue YoY QoQ EBIDTA YoY QoQ Adj.
PAT YoY QoQ Comments
Aurobindo 63,294 7% -2% 13,292 10% -7% 8,126 14% 1%
Natrol divested (one month impact ), injectables in
US to see sequential uptick. Export incentive
impact of ~Rs750mn on EBITDA
Cipla 50,678 16% 1% 11,149 47% -5% 6,277 79% -6% Ramp up in Albuterol and gMigranal, Covid drug
sales, trade generics in India will drive growth
Dr. Reddy's 49,649 13% 1% 12,784 23% 3% 7,325 16% -13% Wockhardt portfolio in India, new launches in US
to drive topline
Lupin 40,442 7% 5% 7,077 65% 10% 3,574 162%^ 41%
Ramp up in Albuterol, re-launch of Metformin to
drive US. Cost initiatives and operating leverage
to drive margins
Sun Pharma 86,700 6% 1% 22,109 26% -4% 13,943 68% -9%
Increased share for Ilumya and Cequa,
stabilization in Taro portfolio to drive revenues.
Margins are stronger (cost savings, Modafinil
litigation cost in the base)
Torrent 20,468 4% 1% 6,243 16% -2% 3,131 25% 1%
Chronic portfolio in India, growth normalization
in Germany (low base) to offset weakness in Brazil
(currency impact). Operating leverage to drive
margins higher
Cadila 38,657 6% 1% 8,311 19% -4% 4,651 22% -23%
Covid drugs, recovery in acute, consumer
wellness to drive topline. Cost measures to drive
margins
Alkem 23,556 8% 0% 5,418 20% -10% 4,198 10% -11%
Strong trade generics biz, recovery in acute
therapies, market share gains in the US to drive
topline. Margins will be aided by cost saving
measures
Source: HSIE Research, Companies, ^Not comparable as sales are ex-Japan biz
Page | 17
Pharma: Sector Update
Sector Valuations
At 29x one year forward, the sector is trading at ~30% premium to its 10-yr avg PER
Exhibit 41: BSE Healthcare Index PER trading at + 2 SD above mean
Source: Bloomberg, HSIE Research
Exhibit 42: The sector premium to Nifty is at 22%, lower
than 10-yr historical average levels of ~31%
Exhibit 43: It has significantly outperformed Nifty by
~47% in last one year
Source: Bloomberg, HSIE Research Source: Bloomberg, HSIE Research
A steady increase in EPS revision supported valuations Exhibit 44: Nifty Pharma Index - consensus EPS revision
Source: Bloomberg, HSIE Research
7-14% EPS revisions in
FY21-23 estimates in the
past 6 months
15
20
25
30
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Jan-
15
Jan-
16
Jan-
17
Jan-
18
Jan-
19
Jan-
20
Jan-
21
1-yr fwd PE 10-yr avg. +1 SD -1 SD +2 SD
0%
10%
20%
30%
40%
50%
60%
70%
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Jan-
15
Jan-
16
Jan-
17
Jan-
18
Jan-
19
Jan-
20
Jan-
21
Sector Premium to Nifty 10-yr avg.
0
50
100
150
200
250
300
350
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Jan
-20
Jan
-21
BSE Heathcare Index Nifty Index
350
400
450
500
550
600
Jul-
19
Oct
-19
Jan-
20
Ap
r-20
Jul-
20
Oct
-20
Jan-
21
FY21e FY22e FY23e
Page | 18
Pharma: Sector Update
Revision in Target Price We roll forward our target price to Mar 23 EPS (from Sep 22) and maintain our
estimates and ratings.
BUY ratings – Alkem (TP – Rs 3,560, 22x Mar’23), Cipla (TP – Rs1,015, 23x Mar’23 and
NPV of Rs30/share for gAdvair and Rs40/sh for gRevlimid), Lupin (TP – Rs1,280, 23x
Mar’23), Aurobindo (TP – Rs1,050, 16x Mar’23).
ADD ratings – Dr. Reddy’s (TP – Rs5,745, 22x Mar’23 and NPV of Rs384/sh for
gRevlimid), Sun Pharma (TP – Rs645, 23x Mar’23), Torrent (TP –Rs2,875, 16x Mar’23
EV/EBIDTA).
Exhibit 45: Revision in target price
Domestic cos M.Cap
(Rs bn)
CMP
(Rs./ Sh) RECO Old TP
Revised
TP
Target
Multiple
Recurring EPS CAGR (FY20-23E)
21E 22E 23E EPS Revenue
Alkem 366 3,062 BUY 3,315 3,560 22.0 135.5 139.5 161.9 19.8% 10.9%
Aurobindo 561 958 BUY 1,005 1,050 16.0 55.4 59.7 65.7 10.5% 6.4%
Cadila 502 490 ADD 460 495 20.0 19.0 21.3 24.6 17.9% 8.6%
Cipla^ 680 843 BUY 940 1,015 23.0 30.8 34.9 41.0 30.2% 11.4%
Dr. Reddy's* 890 5,354 ADD 5,390 5,745 22.0 174.0 211.5 243.7 16.6% 14.4%
Lupin 481 1,060 BUY 1,120 1,280 23.0 26.5 42.2 55.6 36.5%@ 10.4%
Sun 1,463 610 ADD 595 645 23.0 21.7 24.0 28.0 18.7% 7.0%
Torrent# 479 2,834 ADD 2,675 2,875 16.0 76.5 86.4 105.3 20.3% 8.7%
Source: Bloomberg, HSIE Research; #TP based on EV/EBIDTA, *TP includes NPV of Rs 384/sh for gRevlimid, ^TP includes NPV of Rs30 for gAdvair and
Rs40 for gRevlimid, @PBT growth
Exhibit 46: Peer-set valuation
Domestic cos M.Cap
(Rs bn)
CMP
(Rs./ Sh) RECO TP
EV/ EBITDA (X) ROE PER(X)
21E 22E 23E 21E 22E 23E 21E 22E 23E
Alkem 370 3,092 BUY 3,560 18.0 17.0 14.0 23.9 20.8 20.7 22.8 22.2 19.1
Aurobindo 555 947 BUY 1,050 10.1 9.3 8.1 17.7 16.3 15.4 17.1 15.9 14.4
Cadila 499 487 ADD 495 16.7 15.0 13.1 17.6 17.5 17.9 25.6 22.9 19.8
Cipla 679 842 BUY 1,015 14.1 12.7 10.7 14.7 14.7 15.0 25.1 22.1 18.8
Dr. Reddy's 880 5,290 ADD 5,745 16.3 13.6 11.6 17.4 18.2 17.9 28.2 23.2 20.1
Lupin 484 1,067 BUY 1,280 19.6 14.1 11.2 9.3 13.4 15.6 40.3 25.3 19.2
Sun 1,445 602 ADD 645 17.7 15.8 13.5 4.8 12.3 12.6 27.7 25.1 21.5
Torrent 468 2,767 ADD 2,875 19.7 17.8 15.4 25.6 26.4 29.2 36.2 32.0 26.3
Glenmark 145 515 NR NA 8.0 7.7 6.9 14.1 13.3 13.5 15.7 14.4 12.5
Ipca Labs 266 2,096 NR NA 16.9 16.6 14.5 26.5 21.6 20.3 23.3 23.1 20.2
JB Chemicals 81 1,054 NR NA 15.9 14.6 12.7 21.8 20.6 20.4 24.1 22.2 18.8
Eris LS 83 614 NR NA 19.7 17.8 16.0 24.6 24.0 24.9 24.1 21.9 19.3
Source: HSIE Research, Bloomberg, price as on Jan 13, 2021, *DRRD and Cipla ratios are adjusted for product specific NPVs (gRevlimid for DRRD,
gRevlimid and gAdvair for Cipla)
Page | 19
Pharma: Sector Update
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board: +91-22-6171-7330 www.hdfcsec.com
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
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