Tips to save IPO listing gains tax!

It is a well-known fact the pivotal role played by India on the vaccination front. From an investment point of view, it makes sense to bet on the Indian pharma sector as the sector is set to attain new heights in a post-pandemic world as the world turns towards India to make the best medicines available to millions at affordable prices. Citing this, brokerage firm Phillip Capital has released a report ‘Pharmaceuticals – Structural value upgrade’.

“Indian pharma – is all set for a structural value upgrade, led by a robust exports opportunity, supply chain de-risking by global pharma from China, strategic end-to-end integration, or led by PLI schemes, enhanced specialty drug efforts, and recovery of global pharma demand post covid. Also, the covid-led opportunities could be a catalyst in the near term,” the report noted.

The brokerage has prescribed these nine stocks for your portfolio that can deliver up to 42% returns.

Aurobindo Pharma | Target Price – Rs 1,250 | Upside – 42%

“Huge export opportunity in advanced markets, efficiency led by more integrated operations, upgrade in its portfolio, the PLI advantage, and potential vaccine opportunity. The company trades at an attractive valuation of 13x FY23 EPS and 7x FY23 EV/EBITDA, despite its efficient operating matrix, consistent earnings track record, and visible value progress. Additionally, the benefits from the covid vaccine and PLI approval would surprise earnings positively (because we have not yet factored these in our estimates), resulting in a re-rating,” mentioned the report.

IPCA Labs | Target Price – Rs 2,650 | Upside – 40%

“Robust export-led by the China-replacement theme; consistent domestic market outperformance (strong brand focus), and enhanced end-to-end manufacturing integration of a large part of its product portfolio. We build 36% earnings CAGR over FY20-23 to account for strong profitable and predictable earnings growth due to greater integration. We value IPCA at Rs 2,650, i.e., 22x FY23E EPS, as we expect it to sustain the strong growth momentum,” disclosed the report.

Cadila Healthcare | Target Price – Rs 600 | Upside – 36%

“Profitable progress in its key markets – US (upgrade in portfolio) and domestic business (enhanced focus on specialty); financial deleveraging (44% reduction in FY21); stable wellness business; strong EM growth outlook on the back of biosimilars launches. Incrementally, the covid vaccine opportunity remains a strong near-term catalyst (not factored into our model). We value Cadila Healthcare at Rs 600, i.e., at 22x FY23E EPS + PV of Rs 11 from the vaccine, as we build 10%/21% sales/PAT CAGR over FY20-23,” noted the report.

Cipla | Target Price – Rs 1,080 | Upside – 32%

“Cipla will see profitable growth ahead led by strong US growth (gradual albuterol ramp-up and Revlimid opportunity), profitable domestic business led by its respiratory franchise and covid portfolio, and strong exports momentum to EMs. Cost rationalization because of lower SG&A and R&D spending will aid margins in the near term. Pending regulatory action on the Goa factory (which received a warning letter from the USFDA) remains a key risk. We value CIPLA at 23x FY23 EPS to arrive at a target of Rs 1,080,” said the report.

Sun Pharma | Target Price – Rs 750 | Upside – 23%

Phillip Capital believes that Sun Pharma will deliver good profitable growth, led by its increasing execution of the specialty portfolio globally (more importantly in the US) and strong growth in its high-margin domestic business. Steady EM/RoW in a post-covid world will also aid growth; we build 20% earnings growth over FY20-23. We value the company at Rs 750, i.e., 25x FY23 EPS, and expect margins to expand, led by lower SG&A and improving product mix. Revlimid settlement and Halol clearance could be additional re-rating catalysts.

Lupin | Target Price – Rs 1,200 | Upside – 17%

“Earnings CAGR of 34% over FY20-23 and value Lupin at Rs 1,200 (i.e., 23x FY23 EPS), implying a 17% upside. Factoring Spiriva, Brovana, and Dulera we raise our FY23 earnings by 17% and upgrade our rating,” stated the report.

Divi’s Labs | Target Price – Rs 4,200 | Upside – 16%

“DIVI’s strong business outlook, expanded capacity, and improved capability, we estimate it to deliver robust sales/earnings CAGR of 25%/31% over FY20-23. Additionally, increased CRAMS demands and replacement of the Chinese supply chain could surprise growth positively. BUY DIVI for its structural qualitative growth with a target of Rs 4,200,” revealed the report.

Dr Reddy’s Labs | Target Price – Rs 5,350 | Upside – 16%

“Stable U.S. sales led by gRevlimid. Strong domestic business led by the Wockhardt portfolio and contributions from new product launches. Steady traction in EMs led by global commercialization of its products portfolio. Besides, its healthy balance sheet and improving return ratios bodes well in the near term. We maintain a BUY rating with a target of Rs 5,350 (23x FY23 EPS). Shifting focus away from the US could be earning dilutive in the long run – a key risk,” cited the report.

Biocon | Target Price – Rs 475 | Upside – 15%

Phillip Capital is of the opinion that Biocon is plagued by a weak near-term outlook led by a slow progression of biosimilars, delay in new approvals, and inspection delays for Syngene in covid times, we have cut our FY22/23 estimates by 8%/3%.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management does not bear any responsibility for their investment advice. Please consult your investment advisor before investing)