This is the 7th post in our quarterly result update series for Q2FY21.
In this post, we’re sharing the latest updates of the stocks from our watchlist. Please don’t treat this as a buy recommendation. We find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in the future. The purpose of this post is to bring clarity to our understanding of the businesses we are tracking. We make our notes on the quarterly results and conference calls. Putting it up here makes it easier for us to refer them at a future date.
You can see the earlier updates here.
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Please click on the read more button for more details on each stock.
Zydus Cadila is one of the leading pharmaceutical and wellness product makers in the country. The company has done well to maintain good growth in the US generic business and see a resurgence in the India business, both of which are the biggest revenue generators for the company. The company is expected to benefit greatly from its targeted portfolio of products and services for COVID-19 especially from its COVID-19 vaccine which is touted to be more scalable and have better shelf life than the vaccine announced by Pfizer. It also has massive potential in the injectables business where the company is looking to add a number of its products in the near future. It remains to be seen what the future holds for the pharma industry with the race to COVID-19 vaccine intensifying. The company also has to resolve the Moraiya issue pending which can delay its plans for the expansion in the transdermal space. Nonetheless, given the strong positioning of the company in various pharma and consumer product categories and its ever-increasing specialty product portfolio, Zydus Cadila is an important stock to watch out for in the pharma space.
Cupid is a leading condom maker in India. It is also one of the only 3 WHO-approved female condom manufacturers in the world. It exports its products to over 80 countries around the world now. The company has had a dismal quarter due to the postponement of orders from govt and the slow revival of operations. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 120 Cr. The company is also looking to expand into the medical devices field and start selling these by the end of this financial year. It remains to be seen how the COVID-19 situation pans out and what challenges the company faces in its foray into the medical devices field. Nonetheless, given the company’s long history of expertise in this field and the consistent sales growth and expanding order book, Cupid is a good small-cap stock to watch for.
Divi’s Labs has been a celebrated API manufacturer in India for a long time. The company is doing well and differentiating itself from the rest of the Indian Pharma industry by continuing to hone its efforts in maintaining its dominance in the API industry and Custom Synthesis. It had a phenomenal performance in H1 with 34% revenue growth and 61% PAT growth. The management has done well to gain big and high yielding projects in the custom synthesis business which has spurred the company to do additional Capex to expand custom synthesis capacity. It remains to be seen how the company will be able to chart its path in the future by solely relying on its core areas of API and Custom Synthesis while everyone else is diversifying into as many emerging segments as they can and whether the rise in gross margins in last 6 months is sustainable as the management has stated. Nonetheless, given the company’s history of excellent performance and its standing in the global API industry, Divi’s Laboratories remain a pivotal pharma stock in India, especially given the massive China substitution opportunity.
Dr. Reddy’s Laboratories
Dr. Reddy’s Labs has been one of the biggest Indian pharma companies on the global stage. The company is doing well in maintaining its strength in developed markets like the USA and EU and in expanding into emerging markets. It had a steady performance in Q2 with good domestic growth of 21% YoY and 46% QoQ. The API business is expected to continue its growth momentum. The company has also done well to acquire marketing rights to the Sputnik V vaccine for COVID-19 in India. It remains to be seen how the company will be able to sustain the high gross margins seen in H1. It also remains to be seen how will the clinical trials for the Sputnik V vaccine go. Nonetheless, given the company’s history of excellent performance and its standing in the global pharma industry, Dr. Reddy’s Laboratories is a pivotal pharma stock in India.
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