Covid-19 year a high for pharma stocks

In the year of the Covid-19 pandemic, India has witnessed a bull run. The BSE Sensex has grown 66% and Nifty has seen 70% growth in the last one year. Among the sectors that have surpassed these indices are pharma and healthcare.

The BSE Healthcare index and Nifty Pharma index have grown marginally over the main indices. Nifty Pharma index has grown 75.40% in one year from 6,813.05 on March 27, 2020 to 11,883.20 on March 26, 2021, as per the National Stock Exchange (NSE). The 52-week high of this index was 13,476.80 and 52-week low was 6,956.20.

The BSE Healthcare index has grown from 11,607.39 to 20,760.17 during the same time. So far, as the highest and lowest this index witnessed are concerned - 22,464.34 is not just the 52-week high but also all-time high on January 12, 2021. The 52-week low was 11,460.88 on March 30, 2020.

Experts believe that the Covid-induced lockdown was the watershed moment for the pharma industry.

“Before the Covid 19 outbreak, most of the pharma companies were in the recalibration mode during CY16-CY19. This was in response to scores of setbacks in the US, price control and other disturbances in the domestic market which were acting as strong headwinds,” says Siddhant Khandekar from ICICI Securities.

“Covid related critical drugs and API supplies across the globe further vindicated the capability of Indian pharma. While earnings expansion going ahead would be the outcome of pre-Covid recalibration, we believe the multiple expansion has gotten boost due to the pandemic.”

Abdul Puranwala, analyst at Anand Rathi Share and Stock brokers is of the opinion that apart from lower marketing spends, no major inspections of facilities helped pharma counters during the pandemic.

A number of pharma heavyweights are part of these indices like Divis Lab, Sun Pharma, Aurobindo Pharma, which have recorded not just high returns but have doubled and almost tripled in some cases. For many pharma stocks, the growth has been majorly since the lockdown last year.

Aurobindo Pharma, for instance, has almost tripled in one year from Rs 389 per share one year ago on the bourses to Rs 851 per share currently. As per NSE data, this scrip has gone up 135% from last year.

Prior to 2020, the stock which was above Rs 700 in 2016, dropped to Rs 346 in March 2020. The stock grew from that point to its current level.

Divis Lab has grown 83.78% now at Rs 3,461 a share to Rs 1,893 one year ago. Major part of the stock’s growth has been in 2020. Prior to that the stock was stuck between Rs 1,000 and Rs 2,000 between 2016 and 2020.

Among the ones that have not grown as much as the rest are Bengaluru-based Biocon which is a specialist in the biosimilars space and Alkem among others.

Analysts feel that the bull run for pharma is not over. “Companies that manage their inspections well will do well,” says Abdul Puranwala. “We expect some surge in approvals which could be critical for US growth for companies.”

“When you talk about a stock like Biocon, some factors like their CEO resigning and downplay on the $1 million guidance on biosimilar sales have taken a toll on the stock.”

There are multibaggers and there are stocks like Dr Reddy’s Laboratories that have given excellent results but in the last few months, this stock has started to fall and now touched a low of Rs 4,405.30 per share on March 26, 2021, from a 52-week high of Rs 5,514.65 per share.

Puranwala is of the opinion this is due to factors like not getting timely approval for the Russian Sputnik corona vaccine. However, he continues to be bullish on Dr Reddy’s Laboratories and goes on to note how it has been one of the outperformers in pharma.

Divi’s Labs, Syngene, Suven Pharma, Laurus Labs, Cipla, Ajanta Pharma, Abbott India, Sanofi and Dr Reddy’s Labs are some of the pharma stocks analysts are bullish on.