Pharmaceuticals

Goa unit accounts for 24-25% of US turnover– Lupin

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,248 (+0.2%), 27 points higher. Among the sectoral indices, IT (+1.2%), CONSUMER DURABLES (+0.4%), and OIL & GAS (+0.3%) led the gainers, while MEDIA (-1.8%), PSU BANK (-1.0%), and PHARMA (-0.9%) led the laggards. Among the NIFTY50 components, BAJFINANCE (+2.9%), INFY (+2.5%), and BPCL (+2%) were the top gainers while HINDALCO (-1.8%), CIPLA (-1.5%), and SUNPHARMA (-1.4%) led the laggards.

Excerpts of an interview with Mr. Ramesh Swaminathan, ED & Global CFO (LUPIN) with CNBC-TV18 on 15th December 2021:

  • The Establishment Inspection Report (EIR) that comes with Voluntary Action Indicated (VAI) means that the warning letter issued in 2017 on Lupin’s Goa plant has been lifted. LUPIN has about 109 products that are yet to be approved by the FDA and 24-25 out of these are from the Goa unit.
  • LUPIN expects a lot more approvals to come through from this unit over the next few weeks.
  • There has been a lag in LUPIN’s top line because approvals were not coming and the company was not able to leverage on the pipeline. LUPIN will launch new products as approvals start coming in from the Goa unit.
  • This unit is important to LUPIN because 24-25% of the US turnover comes from it and more approvals coming through would help elevate LUPIN’s revenues.
  • LUPIN’s other 3 facilities in India at Mandideep, Tarapur, Pithampur-II, and Somerset in the US also received warning letters which have affected their top line. It expects these units to get inspected over the next quarters and eventually contribute to the top line.
  • LUPIN has a rich pipeline but they are also focusing on more complex products in terms of innovations like complex injectables and biosimilars.
  • They already got approval for Albuterol which indicates the progress they have had in inhalation products. They also introduced Brovana and Spiriva is on the anvil and a lot many to come in the inhalation segment.
  • LUPIN’s facilities have been under the radar for the last 3-4 years and they have been constantly working on it. LUPIN believes they are in a state of readiness when it comes to India and they expect satisfactory solutions as and when the authorities inspect these facilities.
  • LUPIN has been working on the common thread that exists between all of its facilities with its team of consultants and is confident in this regard.
  • LUPIN is confident and prepared to launch Spiriva in the second half of FY23.
  • As far as diagnostics are concerned, LUPIN is thinking big in that direction but it’s not going to be the most important for them. A huge chunk of this segment is fragmented and only 20% of it belongs to the organized sector so that leaves vast scope for it to become organized.
  • LUPIN plans to follow a doctor-led scientific proposition with an ABL certificate.

Asset Multiplier Comments

  • Due to travel restrictions imposed by the COVID-19 virus outbreak, the entire pharma industry has been experiencing a delay in its facilities getting inspected. As the travel restrictions have been lifted, the inspections are expected to pick up the pace.
  • Many of the pharma companies have incurred Capex for new facilities or undertaken remediation of the FDA’s observations. As these facilities are yet to be inspected, there has been a lag in terms of contribution to revenues. Once the approvals start coming through, we expect the top line of companies like LUPIN to report good growth.
  • LUPIN has been impacted by the price erosion in its generic segment in the USA. The impact of this is expected to be mitigated as the specialized products are launched.

Consensus Estimate: (Source: market screener and Tikr websites)

  • The closing price of LUPIN was ₹ 904/- as of 16-December-2021.  It traded at 23x/ 17x the EPS estimates of ₹ 40/ 52/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 985 implies a P/E Multiple of 20x on FY24 EPS estimate of ₹ 52/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Expect 15+ USFDA approval in CY22- Alembic Pharma

Update on the Indian Equity Market:

On Monday, NIFTY ended at 17,368 (-0.8%) 143 points lower. Among the sectoral indices, only IT (+0.3%) ended higher, whereas MEDIA (-1.8%), OIL&GAS (-1.4%) and REALTY (-1.4%) led the losers. Among the stocks, AXISBANK (+2.4%), TECHM (+2.2%), and SBILIFE (+1.5%) led the gainers while BAJAJFINANCE (-3.0%), BAJAJFINSERV (-2.1%), and RELIANCE (-1.9%) led the losers.

Pharmaceuticals

Expect 15+ USFDA approval in CY22- Alembic Pharma

Excerpts of an interview with Mr. RK Baheti, CFO of Alembic Pharma with CNBC TV18 on 9th December 2021:

  • Alembic Pharma has received tentative approval from USFDA for Selexipag tablets, a drug used to treat for pulmonary arterial hypertension with a market size of $460 Mn. There are 4 existing players in the market.
  • The company can only bring the drug to the market post its patent expiry so there’s an expected delay before the drug can be formally launched post final approval which will happen in CY23.
  • The company has first mover advantage in terms of launching the product on Day 1 of Patent Expiry, however the situation remains dynamic and other companies may receive approval for the same.
  • The company has an annual run rate of 15+ approvals and the company expects to launch 15 new products in the US in CY22, with 3 Products being first to file by the company.
  • Indian companies are facing intense pricing pressure in the US Generics business, due to heightened competition. Company’s degrowth is drawn by high base effect of last year’s exceptional performance and also drawn by company benefitting from scarcity and aggressive pricing over the past 2-3 years.
  • The growth ahead is expected to be driven by new launches and first to file opportunities as the pricing degrowth will continue by 10% on an annualized basis, the company has plans to stock up inventories in anticipation of shortages to take advantage of aggressive pricing as and when the opportunities arise

 

Asset Multiplier Comments

  • The company along with its peers is facing stiff competitive pricing pressure in the US Generics business, which was a key growth driver for the company in the past few years.
  • The revenue opportunity of new launches, existing competition and cost controls are going to be key drivers of profitability for the company.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Alembic Pharma was ₹ 797/- as on 13-Dec-2021.  It trades at 23x/19x/17x the EPS estimates of ₹ 35/42/47 for FY22E/FY23E/FY24E respectively.
  • The consensus target price is ₹ 860 implying a P/E Multiple of 18x on FY24 EPS Estimate of ₹ 47

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Growth visible across segments, pricing pressure in US a concern – Alembic Pharma

Update on the Indian Equity Market:

The market witnessed the continuation of the bearish movement due to acute turmoil in Chinese stock markets. Nifty was down 37 points or 0.24% at 15,709.

Among the sectoral indices, METAL (+1.22%) AND IT (+0.21%) were gainers while PSU BANK(-1.88%), AUTO (-0.93%) and REALTY (-0.79%) were top losers. Among the stocks, BHARTIARTL (+5.04%), TATASTEEL (+2.81%), and SBILIFE (+2.16%) were the top gainers while KOTAKBANK (-2.59%), DRREDDY (2.55%) and TATAMOTORS (-2.2%) were the top losers.

Alembic Pharma sees growth across segments; says pricing pressure in the US a concern

Edited excerpts of an interview with Mr Pranav Amin, Managing Director at Alembic Pharmaceutical with CNBCTV18 on 28th July 2021:

Alembic Pharma posted its Q1FY22 earnings. EBITDA, margins and profit have all come in below street estimates, the US generics business has seen a steep fall as well. Pranav Amin

  • Street estimates of EBITDA Margin for 1QFY22 were ~23-24% for the quarter v/s actual reported margin of 18%. The market was disappointed with the performance and stock tanked ~11% post results. Mr Amin explained the reason for the margin decline. He said that US business since the last five years has had a CAGR of about 25 per cent. Part of the growth in the US business was due to the Sartan opportunity, where the company did well.
  • Also there have been a lot of disruptions in the market. Since November or December, disruptions were seen and there was a lot of supply in the market, which has led to pricing pressure in the US market. So that is what has broadly caused the dip in the margins for this quarter.
  • US business declined by 38% YoY reason being the price erosion. Volumes were flat but pricing pressure was seen in other products as well other than the sartans in US business which led to the decline in US business.
  • Guidance on US business – In the last 5-6 quarters the average US revenue has been ~$70mn because of the sartans. Moving forward, the company has withdrawn all guidance. As far as the business is concerned, very robust growth is seen in the Indian market and the company expects it to continue.
  • API business grew by 6% YoY in 1QFY22, last year there were a lot of disruptions in API business because of COVID especially from China. The European business also grew very well, last year, had a growth of 13 per cent. So by and large, all the other businesses are doing okay. It’s just the US that is facing pricing pressure.
  • The company has withdrawn the EPS guidance for FY22 because
    • the markets have been quite dynamic, as is seen on some of the pricing in the Sartans and some of the other products.
    • There’s still no clarity on the FDA inspection of new facilities.
    • Competition is witnessed in some of the other larger products of the company.
  • India Business – India Business does not have a COVID-19 related portfolio. COVID-19 has been tougher for Alembic as most of the portfolio was not used for COVID-19 treatment. Speciality and Acute portfolios have shown good growth. The company expects to grow faster than the market.
  • The company has guided investors to launching 15 products in the US and management wants to stick to it. Strategically company is working on cost optimization, renovating portfolio and seeing where volumes can be maximized for some of the products to remain competitive in US markets. The filing and launches are on track.

 Asset Multiplier Comments

  • The near-term outlook remains muted due to significant erosion in US sales which would also weigh on margin. Further, inspections at new plants have been delayed due to COVID-19 which has led to delay in the launches of complex generics
  • The company’s plan to launch 15 products in the US and consistent performance in Indian branded formulations will help Alembic to perform going forward.

Consensus Estimate (Source: tikr. com and market screener websites)

  •  The closing price of Alembic Pharma was ₹ 796/- as of 28-Jul-21. It traded at 21.5x/17.2x/14.6x the consensus EPS estimate of ₹ 37.6/47/55.5 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 965/- implies a PE multiple of 17x on FY24E EPS of ₹ 55.5/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expect Rs 35bn topline in FY22 – Wockhardt

Update on the Indian Equity Market:

The Indian indices started the week on a negative note dragged by selling in financials and auto stocks. Nifty closed at 15,824 (-0.2%), dragged by JSWSTEEL (-1.8%), WIPRO (-1.5%), and RELIANCE (-1.5%), The top gainers on the index were SBILIFE (+4.0%), BAJAJFINSV (2.4%), and HINDALCO (+1.9%). Among the sectoral indices, METAL (+0.6%), PHARMA (+0.4%), and MEDIA (+0.3%) led the gainers. REALTY (-1.0%), PSU BANK (-0.8%), and AUTO (-0.6%) were the laggards.

Excerpts of an interview with Mr. Habil Khorakiwala, Chairman, Wockhardt with CNBC TV-18 on 26 July 2021:

  • Wockhardt recently posted 1QFY22 earnings. The Company reported a consolidated net loss of ~ Rs 66mn vs a net profit of ~Rs 7598mn in 1QFY21.
  • The India business has grown due to its strategy of divesting the acute portfolio vs the chronic portfolio. With a presence in the therapy areas like diabetes, nephrology, and neurosciences. The differentiated strategy for diabetes- affordability, accessibility, and availability has helped them. On a QoQ basis, India business revenue improved from ~Rs 1,200mn to ~Rs 1,520mn.
  • There was a YoY growth of 69% in the UK business, and it’s a sustainable business. The UK government is manufacturing the AstraZeneca vaccine at the UK plant of Wockhardt. The vaccine business is expected to be sustainable for the next 1 year and this fill-and-finish business is a highly profitable one.
  • The Company’s UK plant received a visit from the UK Prime Minister, the Prince of Wales, and some other ministers. This is because Wockhardt is the only supplier and ~50% of all the UK vaccination has taken place from this facility.
  • The Company is in talks with 2 other vaccine manufacturers for fill-and-finish agreements. The Company is also expanding its capacities which are expected to commission early CY22. This business is expected to expand in the years to come.
  • Wockhardt would be filing the H14 form for its India facility and inviting the US FDA to visit for an inspection.
  • Wockhardt expects to achieve Rs 35bn in terms of topline and maintain the EBITDA margins from the 1QFY22 levels.

Asset Multiplier Comments

  • We believe that the company’s strategic plan is to shift from acute therapeutic areas to more chronic businesses like anti-diabetes, CNS (central nervous system), etc., and also to its niche antibiotic portfolio of NCEs (new chemical entities).
  • This research focus will likely increase the time to deliver returns to shareholders and also make them unpredictable. The vaccine business could be the savior in the medium term as the volumes may increase shortly.

Consensus Estimate: (Source: NSE)

  • The closing price of Wockhardt was ₹ 553/- as of 26-July-2021. The Company reported a loss of ₹ 35.4 per share for the year ended 31st March 2021.
  • The consensus earnings estimate and price target are not available.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Remdesivir production ramped up, seeing a global shortage of Tocilizumab – Cipla

Update on Indian Equity Markets:

After two days of an upswing, markets reflected weakness on Wednesday as Nifty closed the day 0.5% lower at 15,030. Within the index, COALINDIA (3.4%), CIPLA (2.1%), and SUNPHARMA (1.9%) were the highest gainers while TATAMOTORS (-5.5%), BAJAJFINSV (-1.8%), and M&M (-1.8%) were few of the losers. Within the sectoral indices, REALTY (2.2%), MEDIA (2.0%), and PHARMA (1.2%) led the gainers while FIN SERVICE (-0.9%), PVT BANK (-0.8%), and AUTO (-0.7%) were the losers. 

Excerpts of an interview with Mr. Umang Vohra, MD and Global CEO, Cipla Ltd (CIPLA) with CNBC -TV18 dated 18th May 2021:

  • CIPLA has maintained its growth guidance for FY22E as the momentum is intact in the business trajectory with the upcoming launches in the US and India.
  • The rise in input price will abate when the demand for COVID-19 drugs abate, dependent on the trend in cases. 
  • The company has ramped up its Remdesivir production by five times. The company believes that the supply is not short beyond a week’s demand or so because many other manufacturers have also increased production. Along with that, the company is also selling a lot of other vitamins and minerals related to COVID-19. 
  • During 4QFY21, company made 3% of sales from COVID-19 drug as compared to 5% in the earlier quarters.
  • There is a global shortage of Tocilizumab but the company has been able to serve for the same at its highest. Government importing Tocilizumab drug has helped alleviate demand pressure. 
  • The company is also willing to partner with global majors to import vaccines. The company can re-purpose factories for fill and finish of vaccines if required.  

Asset Multiplier Comments:

  • The next 1-2 quarters might see a spurt in revenues from Remdesivir, Tocilizumab, and other COVID-19 related drugs due to the second wave of the pandemic. 
  • With the share of COVID-19 related drugs declining as a percentage of revenues, the focus will be on core business with new launches and new markets for revenue growth. 

Consensus Estimates: (Source: market screener website)

  • The closing price of CIPLA was ₹ 898/- as of 19-May-2021.  It traded at 27x/ 23x the consensus EPS estimate of ₹ 33.6/ 39.8 for 22E/23E respectively.
  • The consensus price target is ₹ 993/- which trades at 25x the EPS estimate for FY23E of ₹ 39.8/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Plan to cross USD 1bn revenue by FY23 – Laurus Labs

Update on the Indian Equity Market:

The Nifty50 made a comeback in the last hour to end the day a little changed at 14,634. Among the index components, SBILIFE (+5.4%), BHARTIARTL (+4.5%), and ADANIPORTS (+4.5%) ended the day with gains. TITAN (-4.6%), INDUSINDBK (-2.3%), and RELIANCE (-1.9%) ended in the red. METAL (+2.2%), FMCG (+1.1%), and PHARMA (+0.3%) were the top sectoral gainers while MEDIA (-1.4%), PRIVATE BANK (-1.1%), and BANK (-1.0%) led the sectoral losers.

Excerpts of an interview with Mr. Satyanarayana Chava, Founder & CEO, Laurus Labs aired on CNBC TV-18 on 30th April 2021:

  • Laurus Labs recently declared 4QFY21 results, wherein Active Pharmaceutical Ingredient (API) revenue is up 88 percent and formulations are up 61 percent YoY. EBITDA margins reported were 33.4%.
  • They have the capacities, products to be made, and customer demand and expect reasonable growth in FY22.
  • The 30% + EBITDA margin is a benchmark. They will aim to achieve these margins to maintain healthy growth.
  • They continue to invest in infrastructure, investing Rs 7,000mn in FY21. They have earmarked Rs 15,000-17,000 mn for FY22 and FY23 for capex to augment their capacities in all 3 divisions.
  • The growth in API business has nothing to do with manufacturing Covid-19 drugs. The growth came primarily from antiretroviral, oncology and contract manufacturing for other generic companies. So far, there hasn’t been any disruption in the supply chain and no impact is expected from the 2nd Covid wave. There was an increase in logistic cost though.
  • The internal target is to cross USD 1bn in revenues by FY23E. With the capex incurred in FY21 and planned in FY22-23E, there will be a growth in revenues in FY22-23E.
  • The raw material price increase in products such as Paracetamol and Azithromycin was due to higher demand. In the products Laurus labs is manufacturing, the demand has not shot up as it has for the 2 products.
  • They are not passing on any of the incremental costs to customers. Due to covid-19, there was an incremental expense of USD 10mn, which was not passed onto customers.
  • Rather than investing in a one-time product, they are investing in the longer term. There is significant investment being made in the CRAMS business as they foresee sizeable growth in that division.

Asset Multiplier Comments

  • The ramp-up in formulations business is expected to continue over FY20-23E. The execution in the US and EU are crucial to drive the next leg of formulations growth.
  • With a renewed focus on the synthesis segment, with R&D, increase in the number of customers, and addition of capabilities positions Laurus to evolve its business mix over the next 3-5 years.

Consensus Estimate: (Source: market screener website)

  • The closing price of LAURUSLABS was ₹ 478/- as of 03-May-2021. It traded at 22x/ 20x the consensus earnings estimate of ₹ 21.3/ 23.9 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 414/- implies a PE multiple of 17x on FY23E EPS of ₹ 23.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Targeting Sputnik V import by June; to be priced at $10 – Dr Reddy’s Lab

Update on the Indian Equity Market:

On Thursday, the Nifty index ended with gains of 0.8% at 14,406 levels led by Metals and Financials. Within NIFTY50, WIPRO (+3.5%), ICICIBANK (+3.45%), and TATASTEEL (+3.2%) were the top gainers, while SHREECEM (-2.8%), TITAN(-2.7%), and TATACONSUM (-1.9%) were the top losing stocks. Among the sectoral indices, FMCG (-0.7%), PHARMA (-0.4%) and IT (-0.2%) were the losers, and BANK (+2.2%), FINSERVICE (+2.1%) AND MEDIA (+1.9%) were the top gainers.

Targeting May end or early June for Sputnik V import; vaccine to be priced at $10, says Dr Reddy’s Lab

Excerpts of an interview with Mr. G V Prasad, Co Chairman and Managing Director, Dr Reddy’s Laboratories (DRL), aired on CNBC-TV18 dated on 20th April 2021:

  • V Prasad, Co-Chairman and MD at Dr Reddy’s Laboratories (DRL), on Tuesday, said that the target for the import of Sputnik V vaccine, against COVID-19, is May end or early June.
  • DRL is doing its best to accelerate the import and expects to get products launched in Q1FY22E. The cold chain and logistics are in place as they talk to the Russian Direct Investment Fund (RDIF) to accelerate the shipments.
  • He also mentioned that the launch of the India-made Sputnik V vaccine is likely to be in the Q2FY22E. Each manufacturer is in a different stage of the manufacturing process. But he hopes that in Q2 India will have Indian manufactured vaccine available at least from one-two players. So, overall Q2 should see the launch of the Indian vaccine.
  • Prasad clarified the pricing on the vaccine and said it would be uniform across the globe. He added that starting with the imported vaccine, the Russian organization has a uniform price of US $10 across the world. So, when it comes in, it will be priced at the same price that this product is offered anywhere else in the world.
  • The Pharma companies manufacturing the vaccines along with the government will have to come up with a price, which he hopes to be less than the imported price. He assured that the companies will not make profit out of this vaccine and expects the vaccine price not to be higher than US$10. 2 doses of vaccines are required and Mr. Prasad doesn’t think price would be an issue and people are willing to pay this price and don’t need to be subsidized.
  • Meanwhile, he welcomed the government’s announcement of liberalized and accelerated Phase 3 strategy of COVID-19 vaccination from May 1. The government said that anyone above 18 years of age will be eligible for vaccination from May 1. This announcement was a very major move by the government which will improve availability, by decentralizing the whole process, the logistics will be much better and it will be market-driven. So, he is optimistic about the way forward.
  • He believed that the private sector can now fully participate in the vaccine drive now and India will see a rise in availability. A rise in private organizations setting up vaccination centers will be seen and the imported vaccine will immediately relieve some pressure. People will also have the choice to get vaccinated with their choice of vaccines.
  • Last, he noted that there will not be any shortage of Remdesivir in the coming weeks. He said that Favipiravir is still available as it is not in much demand. He thinks there has been a significant overuse of Remdesivir. There is a gap in the market as the shortage was sudden and DRL is doing its best to improve the supply of Remdesivir and from next week onwards, they will have a good number of supplies for this product.
  • On April 5, the RDIF and drug firm Panacea Biotec had said that they had agreed to produce 100 million doses per year of Sputnik V COVID-19 vaccine in India.
  • The efficacy of Sputnik V is 91.6 percent as confirmed by the data published in the leading medical journal, Lancet. It has been registered in 59 countries globally, the statement said. The price of Sputnik V is US $10 per shot, it added.

Asset Multiplier Comments

  • Although DRL denied to comment on the profit margins expected from the vaccine and said they are not here to make profits out of this situation we feel that Pharma sector as a whole will see a high single digit or low double-digit growth in FY22E led by covid’s second wave related opportunities.
  • The increasing cases and lockdowns in major states in India will impact the market sentiment. The investors will rush back to the defensives and Pharma sector being one of them is likely to benefit.

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of DRREDDY was ₹ 5,200 as of 22-April-2021. It traded at 26x/ 22x the consensus EPS estimate of ₹ 196/233 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 5,491/- implies a PE multiple of 23x on FY23E EPS of ₹233/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expect Paracetamol prices to stabilize over a quarter or two – Granules India

Update on Indian Equity Market:

A day ahead of monthly F&O expiry, markets were in sell-off mode largely led by banks as Nifty fell 1.8% to 14,549. Within the index, CIPLA (1.8%), ASIANPAINT (1.4%) and POWERGRID (0.9%) were the only gainers while TATASTEEL (-4.7%), TATAMOTORS (-4.2%) and ADANIPORTS (-3.8%) led the losers. Among the sectoral indices, only PHARMA (0.1%) managed to close in green while PSU BANK (-3.3%), METAL (-3.2%), and REALTY (-2.9%) led the losers.

Excerpts of an interview with Ms. Priyanka Chigurupati, ED & Head of Strategy, Granules India (GRANULES) with CNBC -TV18 dated 23rd March 2021:

  • The bulk drug prices of common pain killer drug, Paracetamol, has risen by 75-80 percent in India over the past two to three months. This spike is due to a 60 percent price rise in the two key raw materials used to manufacture the drug.
  • The prices went up from Rs 350 in the domestic market to around Rs 600. The key raw material, Para Amino Phenol (PAP) has seen a sharp increase in the last few months. One of the Chinese facilities responsible for about 46% of the PAP production in the world has shut down resulting in a supply shortage.
  • On the other side, the Chinese companies have increased consumption of PAP due to increasing demand for Paracetamol, further adding pressure on the raw material. 
  • The Company expects this to be a little blip for the next quarter or two. The management is confident of achieving year-end guidance.
  • The Company expects excess supply of PAP in the world over the next few months. This will act as a catalyst for downward pressure on the prices.
  • The Company has passed on the increased cost to its customers. The Company uses formula-based pricing with its strategic partners and has been able to take up most of the price increases. 

Asset Multiplier Comments:

  • The rise in selling price will provide a boost to the top-line during the next quarter or two. This boost will be short-lived as the prices will revert to mean. The price rise has been sharp and may even see muted or slight decline in volumes.
  • As the Company has able to pass on most of the cost rise to its customers, the absolute profitability will see growth. The Company may witness a dip in margins as the base for revenues is high due to higher realization.

Consensus Estimates (Source: market screener website):

  • The closing price of GRANULES was ₹ 323/- as of 24-March-2021.  It traded at 15x/ 13x/ 11x the consensus EPS estimate of ₹ 21.8/ 24.8/ 29.7 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 450/- which trades at 15x the EPS estimate for FY23E of ₹ 29.7/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Investments in generics getting validated now – LUPIN

Update on the Indian Equity Market:

On Tuesday, the equity market reversed from the day’s lows and the Nifty50 index closed 1% higher led by the BFSI sector. The top gainers in the index were SBILIFE (+5.0%), KOTAKBANK (+3.1%), and HDFCBANK (+2.9%) while the losers were BPCL (-4.6%), TATASTEEL (-3.9%), and GAIL (-3.3%). The sectoral gainers were FINANCIAL SERVICES (+2.2%), FINANCIAL SERVICES 25/50 (+1.9%), and PRIVATE BANK (+1.8%). METALS (-2.5%), MEDIA (-1.4%), and REALTY (-1.1%) led the sectoral losers.

On Women’s Day, CNBC-TV18 conducted interviews with some women leaders from India Inc. Here are the excerpts of an interview with Ms. Vinita Gupta, CEO, Lupin with CNBC TV18 on 8th March 2021:

  • Ms. Gupta believes that all the investments made to drive the generics business, and affordable medicines business to the next level are getting validated now. They have been investing in therapies like inhalation, biosimilars, complex injectables, and women’s health products over the past 5 years, and have made tremendous progress in the last 12-18months.
  • In the inhalation therapy, they have received the first major approval for Albuterol in Sept-2020. The timely approval despite the pandemic will be beneficial for asthma and COPD patients who are at a high risk of complications due to Covid-19 infection. Lupin was able to launch the product and is ramping up the production.
  • With more inhalation products pending approval from the US FDA, she believes the inhalation therapy will drive growth in the generics business.
  • There is still a very large number of Corona cases in particular in the US. From a lockdown point, some states have more of a lockdown than others. The elective procedures are still below pre-Covid levels, suggesting things aren’t yet back to normal. They hope things would be in the second half of this year with vaccinations ramping up over the next couple of months.
  • Lupin supplies medicines for about 5% of prescriptions in the USA so maintaining the supply continuity was essential through the pandemic.
  • Despite the pandemic, Lupin was able to achieve QoQ growth in both revenues and profits. She expects the growth to continue on FY22E as well. The Albuterol approval will be a significant growth driver in FY22E.
  • There are 5 other inhaler products in the pipeline in the next 2 years for Lupin in the USA. The FY23 will be a significant year as they intend to launch products like Albuterol, Fostair in Europe, Spiriva in 2023.
  • Price Erosion in the generics will continue to be one of the biggest challenges in FY22E. The price erosion has reduced from earlier periods to low-mid single digits now. The complex generics launches and operating efficiency will help offset the price erosion impact.
  • They have acute and chronic care products within their India portfolio. The chronic care areas such as diabetes, CNS, Cardiovascular, Respiratory have done extremely well. Acute care products have been struggling, in line with the overall acute market in India.

Asset Multiplier Comments

  • Domestic pharma companies have been facing price erosion pressures in generic products in the US for quite some time now. Hence, they have shifted focus on complex generics, and biosimilars which require a higher degree of specialization and are margin accretive. Some of these companies have shifted to a direct-to-market (DTM) approach rather than being partnered companies of US pharma majors.
  • Some domestic Indian companies such as Lupin and Cipla have specialization in respiratory/inhalation therapies. These companies expect Albuterol Sulfate inhaler products to be one of the key growth drivers in the near term. Apart from Albuterol Sulfate, these companies expect an incremental USD 100-150mn opportunity from the respiratory pipeline in the USA.

Consensus Estimate: (Source: market screener website)

  • The closing price of LUPIN was ₹ 1,033/- as of 09-March-2021. It traded at 43x/ 28x/ 23x the consensus earnings estimate of ₹ 23.9/ 37.5/ 45.7 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 1,045 implies a PE multiple of 23x on FY23E EPS of ₹ 45.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information pro

Expect growth to be sustainable for specialty business – Alembic Pharmaceuticals

Update on the Indian Equity Market:

On Thursday, NIFTY closed in red at 14,590 (-0.4%). Top gainers in NIFTY50 were Tata motors (+6.4%), Bajaj Finance (+2.7%), and Reliance (+2.6%). The top losers were ONGC (-3.3%), Tata Steel (-2.9%), and Coal India (-2.6%). The top sectoral losers were PSU BANK (-3.3%), REALTY (-2.6%), and METAL (-2.2%) and there were no sectoral gainers.

Excerpts of an interview with Mr. Shaunak Amin, MD – Alembic Pharma (APLLTD) with CNBC TV18 dated 20thh January 2021:

  • In the trailing quarters, they had almost 10 quarters of fantastic growth in the US business, so the base had been built up quite high. This quarter was a bit of a competitive intensity which led to a slowdown.
  • US sales have slowed down in this quarter.
  • On the Indian side of the business, they haven’t launched any of the COVID-specific products. Whatever growth they did see in Q3 was on the back of a better performance largely by speciality business.
  • The acute portfolio for them was very sluggish not just for them but for the whole market.
  • The company expects growth to be sustainable for speciality businesses.
  • It is the speciality business they expected to be sustainable going forward, acute side of the business the market for that still hasn’t recovered back to normal levels in terms of growth.
  • As long as the market continues to underperform on the acute side of things, it is hard to show large growth numbers.
  • They haven’t pursued any specific cost-cutting activities with respect to COVID. In terms of their operational expenses, they try to maintain their OPEX at the same level pre-COVID, during COVID at the current level now.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of APLLTD was ₹ 942/- as of 21-January-2021.  It traded at 16x /18x/17x the consensus earnings estimate of ₹ 59.3/ 51.2/ 56.2 for FY21E/FY22E/23E respectively.
  • The Consensus price target of APLLTD of ₹ 1,121/- implies a PE multiple of 20x on FY23E EPS estimate of ₹56.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”