Goldman Sachs bullish on Indian CDMO sector, recommends buying these stocks

In its recent report leading global investment banking firm Goldman Sachs has been optimistic on the Indian contract development and manufacturing organisations (CDMOs) and contract research organisations (CROs), as it sees headwinds easing in these sectors. 

Presently, the CDMO and CRO space is led by China, with the country having a 8 per cent and 16 per cent market share in these sectors, as of calendar year 2022. In comparison India has 2.7 per cent and 1.6 per cent market share in CRO and CDMO space respectively. 

Goldman Sachs attributes India’s underpenetrated CDMO and CRO market to smaller capacities, lack of Innovation with little collaboration between Industry and academia; and lower priority from a management strategy standpoint.

However, the investment bank predicts that some of these headwinds are easing as Indian players are focussing on increasing penetration across the global pharmaceutical supply chain starting 2024 by offering meaningful capacities, improved quality, and optionality to de-risk supply chain as vertical integration kicks off in FY25 driven by active pharmaceutical ingridients (API) PLI. 

It further noted that the sector also has other advantages such as improving compliance, investments in capabilities, cost advantages and industry reputational ranks. 

“We believe integrated players offering services right from discovery to commercial manufacturing are best positioned to benefit from the China+1 theme over the medium to long term,” the global investment giant said in a note. 

The company has given 'BUY' call for CRO firm Syngene International with a target price of Rs 875, an upside of 24 per cent on the current market price of Rs 705, as of April 16. 

In this space, Goldman Sachs also recommends buying Neuland Labs with a target price of Rs 9,100, an upside of 27 per cent on the current market price of Rs 7151, as of Tuesday. 

Further, the bank also advises selling Laurus Labs, as it foresees a 23 per cent downside on the stock price at Rs 350, on account of earnings challenges due to monetisation delays with valuations at a premium. 

The investment bank said that the global pharma R&D outsourcing market size stands at $200 billion and is seeing healthy double-digit growth per annum.

“We forecast India’s global market share to increase 30 basis points (bps) in small molecule CDMOs and by 70 bps in CROs by FY28E in our base case. In a bull case scenario where China+1 trends accelerate at a faster pace, the share gains could be threefold ,i.e 120 bps and 200 bps respectively,” Shyam Srinivasan, Karan Vora and Ziyi Chen of Goldman Sachs wrote in a recent report.