Sharekhan Recommends 2 Pharma Stocks To Buy & Hold: 1 Mid Cap & 1 Large Cap

Sharekhan has a positive view on two pharmaceutical stocks. The broking firm has a buy view on mid-cap pharma stock, Strides Pharma Sciences and a hold view on Torrent Pharma, a large-cap stock.

Buy rating on Strides Pharma Sciences with a target price of Rs 450

Sharekhan firm believes that the company is well-positioned to benefit from the growth in the global generics market. Strides has a strong product portfolio and a global footprint, which gives it a competitive advantage. The company is also focused on innovation and has a pipeline of new products in development.

Strides Pharma Science Limited is a pharmaceutical company with a major focus on the development and manufacture of IP-led niche finished dosage formulations. It is also among the world's largest manufacturers of soft gelatin capsules.

Management is hopeful of reaching historical margins of ~20%-21% in the short-medium term vs. ~11.7% EBITDA margins recorded in FY23. The company is confident of reaching EBITDA of Rs. 700 crore - Rs. 750 crore in FY24 vs. EBITDA of Rs. 446 crore in FY23.

Further, it hopes to grow at ~15.0% y-o-y with faster growth likely to come from emerging markets and new geographies than from the regulated markets. The company targets a debt reduction of ~ Rs. 500 crores in FY24 as its overall net debt to EBITDA is around 3.0x.

Sharekhan believes that Strides Pharma Sciences is well-positioned to benefit from the growth in the global generics market. The brokerage firm has a "Buy" rating on the stock with a target price of Rs 450.

"We expect it to record a ~15.3% and ~104.2% CAGR rise in sales and earnings (due to low base) over FY23-FY25E. The stock trades at reasonable valuations of ~17.4x/10.0x its FY2024E / FY2025E earnings vs peers trading at ~20.0x/16.0x its FY24E/FY25E EPS. We retain our Buy recommendation on the stock with an unchanged price target of Rs 450", the broking firm added.

Scrip Price Movement

The latest stock price of the mid-cap company has rallied by 3.69% to Rs 408.75 per share on an intraday basis. In the last one year, the share price has increased by 36.73% while over three years, it has moved by just 1.49%.

Hold rating on Torrent Pharma with a target price of Rs 1,910

Torrent Pharma is a large-cap leading pharmaceutical company in India with a strong focus on generics. The company has a wide portfolio of products, including anti-infectives, cardiovascular, respiratory, and anti-diabetic drugs. Torrent Pharma also has a strong presence in the export market, with sales to over 100 countries.

Overall, Sharekhan believes that Torrent Pharmaceuticals is a good company with a strong track record. However, the brokerage firm believes that the stock is currently trading at a premium valuation and hence has a Hold rating on the stock.

Torrent Pharmaceuticals has a strong product portfolio. The company has a wide range of generic drugs that are marketed in India and other countries. The company also has a strong pipeline of new products that are in the development stage.

Torrent Pharmaceuticals has a global presence. The company has a network of sales and marketing offices in over 50 countries. The company also has manufacturing facilities in India, Brazil, and the US.

Torrent Pharma posted mixed results for Q4FY23, as while it outperformed on the sales front due to stronger growth in India, Brazil, and Germany markets than anticipated it underperformed on a net income basis due to lower other income and higher interest costs than anticipated.

However, Torrent Pharmaceuticals faces some challenges. The company faces stiff competition from other generic pharmaceutical companies. The company also faces regulatory scrutiny from the USFDA.

In recent years, the USFDA has inspected several of Torrent Pharmaceuticals' manufacturing facilities. The company has received warning letters from the USFDA for two of its facilities.

"The existing base business in the US is witnessing decline due to huge price erosions without additional product launches. Hence, we downgrade the stock to HOLD, with a revised price target of Rs 1,910 as all the potential margin expansion and strong revenue growth prospects are already factored in in the prices. The stock is currently trading at ~34.0x/29.2x its FY24E and FY25E EPS, which is at a premium to the historical multiples it has traded at", added the stock broking firm.

Scrip Price Movement

The latest stock price of the large-cap company has marginally increased by 0.06% to Rs 1,807.90 per share on an intraday basis. In the last one year, the share price has rallied by 27.6% while over three years, it has risen by 45.47%.

Disclaimer

The stocks have been picked up from the brokerage reports of Sharekhan. Greynium Information Technologies, the author or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.