1) Divis Labs
• DIVI is a global leader in large-volume APIs and is one of the top 2 global manufacturers for 18 of the 30 molecules supplied by DIVI.
• To support commercial manufacturing, DIVI incurred capex of INR13b in FY20 and is in the last phase of major capital expenditure. DIVI indicated an additional fast-track capex to cater to the upcoming requirement of its Customer Synthesis (CS) customers.
• Motilal Oswal Retail Research remains positive on DIVI’s a) robust chemistry skill sets, b) strong business visibility ahead of capex, c) market leadership in select products, d) healthy balance sheet and consistently superior return ratios, e)chemistry skill sets, and f)efficient manufacturing capabilities
• The PLI scheme is not beneficial to the company as the majority of the products under the scheme are for antibiotics and do not apply to the products offered by DIVI.
• We expect a 34% earnings CAGR over FY20-23E, led by increased business prospects from CS and Generics as well as 770bp margin expansion on better operating leverage, Motilal Oswal research report has stated.
2) IPCA Labs
• Favorable demand for APIs and healthy traction in the EU/Institutional segment is further strengthening the earnings growth momentum for IPCA. • We remain positive on IPCA on the back of a) steady outperformance in the DF segment, b) cost efficiency in API and traction in new APIs as well as continued momentum in existing API molecules – supported by opportunities arising from geopolitical tensions, c) products launches under its own label in the UK, and d) increased backward integration as well as debottlenecking.
• International freight cost remains at elevated levels. The UK business suffered due to issues with distributors.
“We expect an earnings CAGR of 29% (FY20-23), supported by a sales CAGR of 12%/19%/29%/17% in the DF/API/Institutional/Generics segment and 610bp margin expansion owing to a better product mix and operating leverage,” Motilal Oswal Research institute has stated.
3) Sun Pharma
• Motilal Oswal expects a gradual uptick in Taro sales in the near-to-medium term.
• In the Generics segment, the ANDA pipeline remains robust, with 92 ANDAs pending approval. Considering a) stable pricing for the base portfolio, b) increase in the pace of new launches over the medium term, and c) better traction in the Specialty portfolio, we expect US sales to exhibit a 4% sales CAGR to USD1.7b over FY20-23E.
• Based on its established presence in the Chronic category and new launches in both the Acute and Chronic categories, SUNP is well-placed to outperform the industry over the next 2-3 years. However, considering the COVID-led slowdown, we expect a 7% CAGR in India sales to INR120b over FY20-23E.
• Travelling and promotional expenses in the DF segment are yet to return to normal levels
• Motilal Oswal believes Sun Pharma’s RoE is at a trough and would improve with a 17% earnings CAGR over FY20-23E, led by a) improving traction in the Specialty portfolio, b) a robust ANDA pipeline, and c) increased market share in the Branded segment.
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