This is the 8th post in our quarterly result update series for Q1FY21.
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.
Cadila Healthcare
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 stay flat 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 RemDac which is currently the cheapest Remdesivir drug available in India. 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 FDA audits pending which can prove to be a downer if any negative observations are made during those audits. 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 every pharma investor.
Divi’s Labs
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 Q1 with 47% revenue growth and 81% PAT growth. Though the management has admitted that Q1 had some one-off and lumpy sales, there is no denying the fact that the company is set to benefit immensely from the general industry shift away from Chinese API makers. 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 in diversifying into as many emerging segments as they can. 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
Dr Reddy’s Labs has been one of the biggest Indian pharma companies at 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 phenomenal performance in Q1 with 47% EBITDA growth and 74% PBT growth barring the settlement of Rs 346 Cr. The bulk of this performance can be attributed to the rise in the API business which rose 88% YoY. It remains to be seen how the company will be able to sustain the high gross margins seen in Q1 with the API business and how long will it take for the domestic business to normalize. Nonetheless, given the company’s history of excellent performance and its standing in the global pharma industry, Dr. Reddy’s Laboratories remain a pivotal pharma stock in India.
Natco Pharma
Natco Pharma is a vertically integrated and R&D focussed pharma company with a specialization in FDFs and APIs. Their revenues and margins have taken a hit due to pressure in both the domestic and the export market. In the export market, their dependency on the USA is still high. In the last few years, they have made some progress on expanding newer geographies, however, there is still a lot of work to be done on that front. In the domestic market, they are highly dependent on the oncology market. As the lockdown was in force, the demand for their products also fell. The management expects the demand to come back soon. However, in the long run, meaningful expansion in newer geographies around the world and adding new segments in the domestic market is going to be the points to track about the company. Despite the challenges, Natco pharma appears to be a good stock to watch out for due to the management’s focus on R&D and execution of long term plans for the company.
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