Pharma stocks scale fresh highs amid record rise in Covid-19 cases

Pharma stocks outshined the benchmark indices today due to a record surge of 3.16 lakh Covid -19 cases in the last 24 hours. While Sensex was trading 200 points higher in afternoon session, BSE healthcare index rose 258 points to 23,633.  Shares of Suven Life Sciences (up 18.36 per cent), Morepen Labs (up 15.44 per cent), Necter Life Sciences (up 14.94 per cent), Astrazeneca Pharma (up 13.44 per cent) and Panacea Biotech (up 10 per cent) were among the top gainers in the pharma sector.

Shares of Panacea Biotech were locked in the 10 per cent upper circuit for the second straight day, at Rs 323.70, hitting an over 12-year high on the BSE on Thursday. Apollo Hospitals share price also hit a fresh 52 week high in today's session. Many brokerages believe the Indian pharmaceutical sector is set for a valuation upgrade and is likely to reward the investors with double-digit gains.

"Larger players from the sector are positioned to gain more than the smaller ones and fragmented market share is an opportunity for larger players to expand market share," brokerage firm IIFL Securities said in a note.

"The Indian diagnostics industry offers consistent, the long-term growth potential of 11-12 percent, and national diagnostic chains would continue to outperform the industry growth. Increasing health awareness post-COVID-19, specialised and home collection segment would continue to aid realisations," it added.

The firm noted that healthcare would remain a key focus post-COVID-19 and may drive higher specialised, preventing, and wellness testing, and home collections.

"The listed Indian diagnostic companies (Dr. Lal, Metropolis, and Thyrocare) trade at median valuations of about 49 times FY23 PER (price-earnings ratio)," it said. It also expects valuations for these national diagnostic chains to sustain on the back of their long-term volume-led growth potential, continued gains in market share from unorganised standalone labs, limited CAPEX and working capital investments, strong FCF generation, and high RoIC post-tax.

"Given their small revenue base and current low market shares, diagnostic companies have enough headroom for growth, and their earnings growth profile will be substantially higher than some of these FMCG and consumer discretionary stocks (such as Asian Paints, Pidilite, HUL, Dabur, Britannia, Marico), IIFL added.

In the last 1 month, the pharma index has outperformed frontline indices. This month so far, the index has gained around 9 percent, while Nifty is down about 3.5 percent. Experts expect pharma stocks to continue rising and outperform Nifty over the medium term as  Covid 19 cases continue to touch fresh highs  almost every day in the country.

India reported nearly 3.16 lakh fresh cases and a record 2,104 deaths in the past 24 hours. This is the first time the country has crossed the three-lakh mark in new infections.

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