Suven Pharma, Divis, Syngene: Why Macquarie is betting big on Indian pharma

Pharma stocks list: Divis Labs share price rallied 1.9% intraday, Suven Pharma share price surged 4.6%, Blue Jet Healthcare share price added 4.9%, and Syngene International share price rose 1.5%

The Indian pharmaceutical industry, especially the CRDMO segment, could be at an inflection point, believe analysts at Macquarie. Increased pharmaceutical outsourcing, coupled with regulatory tailwinds, the brokerage said, could accelerate the growth of the industry and related players in the coming years.

 

"India CDMO companies trade at an average 2-year forward EV/Ebitda of 20x, compared to 15x for global peers. We believe India CDMOs' premium valuation is justified as they offer a ~2x Ebitda growth CAGR over the next three years and ~2x return on invested capital (ROIC) as compared to global and regional peers,” the brokerage said in its report dated February 18, 2025.

 

 

Given this, Macquarie has initiated coverage on stocks of Divi's Labs, Suven Pharma, Blue Jet Healthcare, and Syngene International with ‘Outperform’ ratings.

 

On the bourses, Divis Labs share price rallied 1.9 per cent intraday, Suven Pharma share price surged 4.6 per cent, Blue Jet Healthcare share price added 4.9 per cent, and Syngene International share price rose 1.5 per cent on the NSE. By comparison, the benchmark Nifty 50 today was quoting 0.09 per cent higher at 10:50 AM, while the Nifty Pharma index was down 1 per cent.

 

Here is why Macquarie is bullish on Indian pharma stocks:

 

1) Fastest growing CRDMO sector globally

According to analysts at Macquarie, the India CRDMOs (contract research, development, and manufacturing organisations) are expected to see high growth rates ahead amid regulatory tailwinds emerging from the US, and as global pharmaceutical companies look to diversify their supply chains away from China.

 

For instance, Macquarie believes the Inflation Reduction Act, which proposes lower prices of prescribed medical drugs, in the US may increase pressure on US pharmaceutical companies to reduce costs, making them increasingly reliant on CDMOs outsourcing partners.

 

Further, many US-based pharma companies are looking to de-risk their supply chains by diversifying their outsourced activities out of China amid the proposed US Biosecure Act, which restricts government agencies and federally funded companies from contracting with certain biotech/CDMO firms.

 

"We estimate implementation of the US Biosecure Act could divert around $17 billion of opportunities from Chinese CDMO companies to other regions over the next 3-5 years. Assuming 25 per cent of this incremental business shifts to Indian CDMOs, it could add about $4 billion in the medium term, boosting the India CDMO market to ~$22 billion in the bull case scenario, compared to $18 billion in the base case scenario," the brokerage noted.

 

Macquarie forecasts India CDMOs' market share in the global CDMO industry to rise to 5 per cent by 2028 from 3.7 per cent in 2023. Market share gain, it said, will be driven by significant cost advantages due to lower wage costs, robust infrastructure, and strong talent pool.

 

Supportive geopolitical dynamics, ease of doing business, and strong intellectual property (IP) protection laws enhance India's position as a preferred partner for pharmaceutical R&D and manufacturing, Macquarie added.

 

2) Improvement in profits, return ratios expected

Given the enhanced exports, Macquarie believes Ebitda margins of Divi’s Labs, Syngene, Blue Jet Healthcare, and Suven Pharma will expand ahead in low double-digit percentage points driven by operating leverage as utilisation of newly added capacities ramp up.

 

"Within our product focused CDMOs, we expect revenue from manufacturing of complex products such as Peptides, ADCs, and Oligos to grow at a faster pace. Since these projects offer higher contribution margin, we expect gross margin improvement for our product focused companies such as Divi's Labs and Suven," Macquarie.

 

On similar grounds, Macquarie expects RoICs to reach over 30 per cent for product-focused CDMOs such as Divi's Laboratories, Suven Pharma, and Bluejet Healthcare, and over 20 per cent for the service-focused CDMO Syngene International.

 

Macquarie on Divis Labs, Syngene, Suven Pharma, Bluejet Healthcare: Outlook, share price target

 

Macquarie has initiated coverage on Divis Labs share price with an ‘Outperform’ rating and a share price target price of Rs 7,400, implying a 26 per cent shareholder return.

 

Divi's Labs, it said, is the largest CDMO firm in India and works with a majority of top-20 global innovator-pharma companies on small-molecule products. The company's custom synthesis business is set for significant growth and poised to triple its top-line and quadruple bottom-line by FY30E.

 

Likewise, it has initiated coverage of Suven Pharmaceuticals share with an ‘Outperform’ rating and a share price target of Rs 1,500 on the back of successful close of merger with Cohance, growth in commercial molecule portfolio, and rapid growth in niche segments such as ADC and Oligos.

 

Further, Macquarie expects Blue Jet Healthcare's pharma CDMO business to grow significantly with the ramp-up of existing molecules and the addition of new molecules. It has initiated coverage of the company with an ‘Outperform’ rating and a share price target of Rs 1,000, implying a 33 per cent shareholder return.

 

For Syngene International, Macquarie said the company is in a unique position to benefit from biotech funding recovery, supply chain de-risking, and higher pharma outsourcing. It has assigned an ‘Outperform’ rating with a share price target of Rs 835.