Sun Pharma, Aurobindo Pharma among top stock picks from Pharma sector; CLSA sees gain up to 30%

Indian Pharma companies rallied as hydroxychloroquine was seen as one of the drugs effective in treating coronavirus. The Nifty Pharma index gained 23 per cent since April 2020, while broader Nifty 50 index advanced 11.45 per cent. “Earnings momentum for Indian pharma companies will continue, led by a gradually improving outlook for the US, strong long-term macro drivers for India, margin expansion from an improved product mix and a currency tailwind,” foreign brokerage firm CLSA said in its latest report. Owing to recent broad-based rally in the pharma sector, CLSA advises a stock-specific approach.

Among pharma stocks, the top stock picks of CLSA are Sun Pharma, Cipla, Aurobindo Pharma and Cadila Healthcare, recommending a ‘buy’ rating on them. The brokerage sees an upside of up to 30 per cent in these pharma stocks. “Sun Pharma, a play on its differentiated US products, Aurobindo for its US generic products, Cipla for its respiratory pipeline and Cadila for its US generics & India pharma/consumer products, are our top picks,” CLSA added.

The brokerage has downgraded Lupin shares from outperform to ‘sell’ as risk-reward turned unfavourable. Similarly, it revised its rating on Abbott India as well, from ‘buy’ to outperform. Even as it lowered the ratings on Lupin and Abbott India, it raised their target prices by 18 per cent and 20.6 per cent, respectively.

Sun Pharmaceutical Industries: Sun Pharma shares were trading 2.38 per cent higher at Rs 462.95 apiece on NSE. From the previous close level of Rs 452.20, the stock will have to jump 30 per cent to touch the target price of Rs 590 mentioned by the foreign brokerage. “We remain confident about Sun Pharma’s ability to ramp-up its differentiated products in the US over next two years,” CLSA said.

Cipla: Cipla shares were trading nearly half a per cent higher at Rs 592.20 per share on National Stock Exchange in Friday’s trade. An 18 per cent upside would be required from its previous close of Rs 589.55 to take it to a price target of Rs 720, pegged by CLSA. “It’s positioning in the branded generic markets of India and South Africa remains strong and these markets are expected to generate significant free cash flows going forward,” the brokerage said.

Aurobindo Pharma: In Friday’s trade, Aurobindo Pharma was trading at Rs 654.50 with a gain of 0.92 per cent. CLSA sees 18 per cent upside in the stock from its previous closing level of Rs 648.55. “New launch pipeline along with improving market share in existing products should enable the company to witness mid-single digit growth in the US. Recent US FDA clearance of Unit IV plant is a significant positive,” CLSA said in its report.

Cadila Healthcare: Shares of Cadila Healthcare were trading a tad higher at Rs 321.40 apiece on NSE. CLSA has revised its target price to Rs 400 from Rs 350, an upside of 20 per cent from its Thursday’s close of Rs 321.20 per equity on NSE. “Outlook for EMs remains promising with a strong pipeline of vaccines and biologics portfolio,” CLSA said in its research report. “Cadila Health is progressing well towards its aim of strengthening the India prescription and consumer business. We expect improved profitability for these verticals over the next two years,” it added.

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