Macquarie in its latest note on contract research, development, and manufacturing (CRDMO) sector initiated coverage on four Indian stocks namely Divis Laboratories Ltd, Suven Pharma Ltd, Blue Jet Healthcare Ltd and Syngene International Ltd with 'Outperform' ratings. The foreign brokerage believes that regulatory tailwinds, such as the US Biosecure Act, could accelerate the growth for the sector to a high-teens compounded annually, with an industry size of $22 billion by 2030. Macquarie said India CDMO companies trade at an average 2-year forward EV/Ebitda of 20 times, compared with 16 times for regional players and 15 times for global peers. It believes the premium valuation for Indian CDMOs is justified due as they offer may offer a 2 times Ebitda growth over the next three years and 2 times ROIC as compared with global and regional peers. It has relative preference for Divis Labs, followed by Suven Pharma, Blue Jet Healthcare and Syngene.
Explaining this, Macquarie said Divi's Laboratories and Suven Pharma stand out as product-led CDMOs focusing on advanced technologies such as anti-body drug conjugates (ADCs), peptides and oligonucleotides. It projected a faster top-line CAGR of 20-25 per cent for these product-led CDMOs against a mid-teens CAGR for services-led Syngene.
"We expect a 1,000 bps improvement in Ebitda margins, and 1.5-2 times improvement in ROICs for our Indian CDMO coverage by FY30E. Our coverage companies have added a median of 42 per cent to their gross asset base (organic and inorganic) over the past two years, which has compressed profitability and return ratios," it noted.
Macquarie has a target price of Rs 7,400 for Divis Labs, Rs 1,500 for Suven Pharma, Rs 835 for Syngene and Rs 1,000 for Blue Jet Healthcare, suggesting 19-35 per cent upside potential. It said India is becoming the preferred choice for small molecule development, driven by cost competitiveness, strong regulatory compliance, and expertise in active pharmaceutical ingredients (APIs), highly potent active pharmaceutical ingredients (HPAPIs), and specialty chemicals.
Besides, it felt India’s strong track record in generic drugs and API supply positions it as a natural alternative to China, particularly in light of supply chain diversification efforts by global pharma firms.
It noted that India CDMO companies have witnessed strong request for proposals (RFP) growth of 100 per cent-plus in the past year, owing to pending regulatory changes and geopolitical uncertainty.
"The India CRDMO sector is at an inflection point, driven by increased pharmaceutical outsourcing due to drug pricing pressures and geopolitical factors, prompting a global restructuring of the pharmaceutical supply chain. As per the consultancy report, the Indian CRDMO industry, currently valued at $7 billion, is set to deliver a 14 per cent CAGR to $14 billion by 2028," Macquarie said.