Is it Time for Midcap Pharma Stocks to Shine?

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The 2017 fiscal year was a stellar one for midcap stocks, which continued their outperformance of benchmark indices: consider the 35% positive returns from midcaps in FY ‘17, compared to the Nifty’s 19%.

According to a Motilal Oswal report, investors who bet on midcap stocks over the last five years have been rewarded – they outperformed the Nifty by 50%

While blue chip and tech stocks dominate market news in India, smaller, lower-profile players have been catching analysts’ eyes.

In particular, midcap pharma stocks have done better than midcap IT stocks. Despite the perpetual risk of Indian pharma coming under the US Food and Drug Administration (FDA) scanner, observers expect domestic companies to receive regulatory approvals within the next few months – a fillip for the overall sector.

The growth opportunities for the domestic pharma industry lie in lifestyle and environmental factors that will require increased spending on drugs and medicinal products.

Here’s a look at some midcap pharma stocks singled out by analysts:

Ajanta Pharma Ltd.

Ajanta Pharma specializes in finished dosages, with a focus on cardiology, ophthalmology and dermatology. Between 2011 and 2016, it witnessed a CAGR of 30% in domestic formulations sales, vs. a 14-15% industry CAGR.

Motilal Oswal has highlighted new products and a steady flow of abbreviated new drug applications (ANDA) as reasons to watch the company.

While Ajanta’s US business is still nascent compared to other midcap pharma companies, its FY ‘17 projected US revenues are Rs 190 crore. The company is also growing Asia and Africa, where it is a leader in anti-malaria formulas.

Laurus Labs Ltd.

Laurus Labs, which is in the business of manufacturing active pharmaceutical ingredients (APIs), only listed its shares in December after registering annual growth of 41% (CAGR) between 2012 and 2016.

The firm’s operations are export-heavy – only around 20% of revenues are from the domestic market, which includes clients such as Cipla, Natco and Mylan. Some analysts have questioned the company’s dependence on a few big-name customers.

Recently, the Government Pension Fund of Norway sold more than 5.67 lakhs shares in Laurus. The company’s founder and CEO expects the return ratio to be above 20% once its formulations start generating revenue.

Vivimed Labs Ltd.

Vivimed Labs is another midcap pharma player with a steady stream of exports and MNC clients. It manufactures APIs, formulations, specialty chemicals and pharmaceuticals and has passed FDA inspections of its plants in Spain, Mexico and India.

The firm saw heightened investor action after it declared a consolidated net profit of Rs 51.71 crore for the quarter ending December 2016 – a 125% year over year increase. This was also on the back of a 74.29% sales increase.

For more business news, visit BloombergQuint.

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