Pharma shares rally; Suven, Granules, Ajanta, Jubilant surge over 5%

Q1 earnings cheer: Lupin, Zydus Lifesciences, Glenmark Pharmaceuticals, Aurobindo Pharma, Torrent Pharmaceuticals and Sun Pharmaceutical were up between 2 per cent and 3 per cent.

Shares of pharmaceutical companies were in demand on Wednesday on the back of earnings growth; thus leading the BSE Healthcare index to a new high of 40,583, up 1 per cent.
 

Unichem Laboratories, Granules India, Ajanta Pharma, Jubilant Pharmova, Wockhardt, Gland Pharma and SMS Pharmaceuticals were up in the range of 5 per cent to 8 per cent. Lupin, Zydus Lifesciences, Glenmark Pharmaceuticals, Aurobindo Pharma, Torrent Pharmaceuticals and Sun Pharmaceutical Industries were up between 2 per cent and 3 per cent. In comparison, the BSE Sensex was up 0.24 per cent at 81,651 at 01:51 pm.

Among individual stocks, Ajanta Pharma hit a record high of Rs 2,717.25, as it rallied 8 per cent after the company reported strong operational performance. Earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 21.7 per cent year-on-year (YoY) to Rs 330 crore; margins at 28.9 per cent against 27 per cent in Q1FY24, driven by strong gross profit margin performance. Revenues grew 12 per cent YoY to Rs 1,145 crore driven by Africa branded, India branded and Asia branded.

Branded businesses in India, Asia and Africa were driven by new launches and market share gains in existing products. The US growth was slightly tepid but in line with the guidance and was expected to pick up. Africa tender continued to remain lumpy. Strong margins performance was attributable to strong branded business growth (~65 per cent of sales) which together grew 17 per cent YoY. Ajanta continues to generate robust FCF, ICICI Securities said in a note.

“After the margin dip/earnings decline in FY23, Ajanta Pharma has consistently improved its profitability in FY24/Q1FY25. The strong brand franchise in established markets of India, Asia, and Africa enables Ajanta Pharma to outperform the industry. It is also in the process of building a healthy ANDA pipeline for the US generics market. Accordingly, we expect 19 per cent earnings CAGR over FY24-26,” Motilal Oswal Financial Services said in the result update.

The brokerage firm raised its earnings estimate by 8 per cent/5 per cent for FY25/FY26E factoring in a robust execution in the branded generics segments of Asia, Africa, and India; a subdued outlook in the anti-malaria business; and improved operating leverage. It values Ajanta Pharma at 30x 12M forward earnings to arrive at target price of Rs 2,935 per share.

Shares of Granules India hit a new high of Rs 631.15, as they surged 7 per cent on the back of a three-fold jump in average trading volumes after the firm's net profit more-than-doubled to Rs 134.60 crore in Q1FY25. The company had posted a profit of Rs 47.9 crore in Q1FY24.

Revenue from operations of Q1FY25 stood at Rs 1,180 crore, a growth of 20 per cent YoY. Revenue share from the North America increased to 74 per cent in Q1FY25 as compared to 61 per cent in Q1 FY24. EBITDA grew 90 per cent YoY to Rs 259 crore and EBITDA margins stood at 22 per cent (809 bps improvement). Besides lower base, the growth was driven by better product mix as reflected in GPM improvement (757 bps to 58.9 per cent).

Firm US sales and strengthening of margins were key takeaways from Q1 numbers. On API front, price erosion in Paracetamol and slower than expected inventory de-stocking at the customers’ end continue to weigh on performance, ICICI Securities said.

Granules India is now focusing more on Formulations (FD) to drive growth backed by volumes especially in the US and Europe. It plans to file 7- 8 products in the US every year. The company is also focusing on Oncology as a segment with dedicated API and formulations block at Vizag. It has already announced an aggressive Capex of Rs 700 crore which includes manufacturing of Paracetamol and Metformin KSMs and intermediates via green route, the brokerage firm said, adding it continues to monitor progress on the margins front as well as execution of the Capex.