Pharmaceuticals & Biotech.    
SECTOR | 14 Jan 2021
HDFC Securities
Top picks are Alkem, Aurobindo, Cipla and Lupin We like Alkem (the best play on acute recovery), Aurobindo (building complex pipeline, Covid upsides), Cipla (strong India franchise, inhalers monetisation) and Lupin (chronic focused portfolio, inhalers, operating leverage). We see several growth catalysts across key markets and product categories (inhalers, biosimilars, complex injectables) playing out over the next 2-3 years for Indian pharma companies. The investments made over the last few years leave them well placed to capitalise on these opportunities. With cost bases pruned and operating leverage benefits, the sector is poised to grow at ~21% earnings CAGR and witness ROCE improvement of 430bps to 15% over FY20-23e. This, coupled with strong balance sheets (near debt-free), should support valuations, in our view. BSE HC Index has outperformed Nifty by ~47% in the past one year and trades at ~29x 1-yr forward, ~30% above its historical average and ~22% premium to Nifty (vs. 10-yr average of 31%).
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BP Wealth released a Sector Update report for Pharmaceuticals & Biotech. on 16 Jan, 2021.
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