Jefferies sees up to 21% upside in these two pharma stocks

On the other hand, the brokerage sees Laurus Labs at Rs 628, assigning it a multiple of 21.5 times FY24 EPS compared with its historical average of 20 times. That target suggests a 21 per cent potential upside.

Jefferies said Indian contract development and manufacturing organisation (CDMO) companies are seeing significant order flow improvement with strong growth visibility. Several differentiated business models have emerged, it said, adding that it likes the ones where vendors operate in less competitive spaces and those backed by proven management.

In that context, Jefferies said Gland Pharma is a B2B player that has built its expertise over several decades in the difficult-to-master injectables space. The company has a pristine track record on USFDA audits, and maintaining such compliance for injectables facilities has been a differentiator, it said.

“Gland Pharma is an injectable specialist and a contract manufacturer; hence, it benefits from economies of scale and is less exposed to generic pricing risk. The company has $7.5 billion worth of pending ANDA and tentative approvals. With the new Pashamylaram facility, Gland has adequate capacity to venture into new markets. Gland’s current biosimilar capacity is 10kl, it has incurred most of the capex to double it, and it plans to expand to 60kl in future years,” it said.

ANDA stands for abbreviated new drug application.

On Laurus, the brokerage said the API maker was traditionally strong in anti-retroviral API manufacturing but has since diversified into finished dosage and, more recently, custom synthesis or CDMO.

“Laurus has initiated a large capex cycle that will increase its gross block by 67 per cent in the next 18 months with investments in API, Finished Dosage, and Custom Synthesis. The company recently acquired Richcore, which gives it a launching pad in recombinant animal-free food proteins.

Laurus has created a subsidiary, LSPL, and is building manufacturing facilities that will lend self-sufficiency to the CDMO business going forward. LSPL will have its 200,000-square-feet R&D facility that will be operational by FY23 and greenfield manufacturing units by FY24,” it said.

In the last year, Gland has been the best-performing CDMO player, gaining 66 per cent, with Laurus not far behind at 52 per cent.

“The Nifty Pharma index was flat, showing that CDMOs are “flavour of the season” for investors,” Jefferies said.