India’s top 5 pharma stocks by growth

As India cements its status as the "pharmacy of the world," its pharmaceutical giants are not just keeping pace—they're setting the pace. With the industry projected to leap from a value of $40 billion in 2021 to $130 billion by 2030, the stage is set for unprecedented growth. But as these companies scale new heights, they must also navigate a complex landscape of regulatory hurdles, global competition, and supply chain risks.

The Indian pharmaceutical industry has undergone a seismic transformation, evolving from a nascent sector into a global powerhouse. Today, India supplies 60% of the world's vaccines, 40% of the generic demand in the US, and 25% of the UK's medicines. This dominance is fuelled by cost competitiveness, a supportive government framework, and a global population increasingly aware of health and aging concerns.

Spotlight on industry leaders

Lupin Ltd: Homegrown pharmaceutical major Lupin has delivered strong financial results. In the June 2024 quarter, Lupin reported a 16% year-on-year (YoY) revenue growth, reaching ₹55.1 billion. The company’s US sales surged by 25% YoY to ₹19 billion, primarily driven by new product launches.

In India, Lupin outpaced the market with an 18% YoY growth, significantly exceeding the Indian Pharmaceutical Market (IPM) growth rate of 8.7%. Additionally, the company recorded strong double-digit growth in developed markets like Canada and the UK, fuelled by its expanding product portfolio.

On the profitability front, Lupin's bottom line saw an impressive 79% YoY increase, reaching ₹8.1 billion. Looking ahead, the company has a robust pipeline with around 20 new product launches planned for FY25, aiming for 20-30% growth.

Operationally, Lupin develops, manufactures, and sells a broad range of branded and generic formulations, active pharmaceutical ingredients (APIs), and biotechnology products. The company’s comprehensive product portfolio is manufactured across its 15 facilities worldwide. Additionally, Lupin operates six state-of-the-art API facilities and seven R&D centres. Its products span various therapeutic areas, including cardiovascular, diabetology, asthma, paediatrics, and the central nervous system.

Aurobindo Pharma: In the first quarter of FY25, Aurobindo Pharma reported a 10% year-on-year (YoY) growth in revenue, reaching ₹75.7 billion. US revenues stood at ₹35.2 billion, reflecting seasonal impacts, while European revenues reached ₹19.1 billion, positioning the company on track to achieve over ₹76.5 billion in FY25. During this period, Aurobindo maintained a solid operating margin of 21.4%, supported by stable raw material prices and operating leverage. The company's net profit for the quarter surged by 61% YoY, reaching ₹9.2 billion.

Founded in 1986, Aurobindo Pharma is a market leader in the single-unit manufacturing of semi-synthetic penicillin (SSP). The company has a significant presence across various segments, including cardiovascular, neurosciences, anti-retroviral, anti-diabetes, and gastroenterology. Injectable sales account for 25% of Aurobindo’s US sales and 12% of its overall sales. The company supplies 15 drugs across 22 categories that are currently in shortage in the US.

Aurobindo Pharma recently entered into a joint venture (JV) with New Jersey-based MSD Pharmaceuticals for biologics manufacturing. The investment, amounting to ₹10 billion, will be used to build a manufacturing facility in Telangana through Aurobindo's biologics arm, TheraNym. This announcement led to a 4% increase in the company's share price. The company continues to focus on strengthening its US generics business through its robust manufacturing value chain.

Sun Pharmaceutical Industries Ltd: Sun Pharma, the third company on the list, reported sales of ₹125.2 billion for Q1 FY25, marking a 6.3% year-on-year (YoY) increase and a 6% sequential rise from Q4 FY24. Formulation sales in India reached ₹41.4 billion, reflecting robust YoY growth of 16.4% and contributing 33.1% to the total consolidated sales for the quarter.

However, overall US sales declined slightly by 1% YoY to ₹37.4 billion, representing 31.1% of consolidated sales. Branded formulation revenues in emerging markets totalled ₹23.8 billion, up 8.8% YoY, with constant currency growth of 11%, while sales in the rest of the world amounted to $190 million, down 2.9% YoY.

Sun Pharma's net profit surged 40.2% YoY to ₹28.4 billion, with an adjusted increase of 20.9% after excluding prior quarter adjustments.

Operationally, Sun Pharma is India's largest pharmaceutical company, engaged in the manufacturing, development, and marketing of a wide range of branded and generic formulations, as well as active pharmaceutical ingredients (APIs). The company's extensive product portfolio includes generics, branded generics, and specialty products, available in various dosage forms such as injectables, sprays, ointments, tablets, capsules, and liquids. These products cover a broad spectrum of therapeutic areas, including cardiology, neuropsychiatry, gastroenterology, dermatology, ophthalmology, and onco-dermatology.

Sun Pharma operates approximately 43 manufacturing facilities across India, the Americas, Asia, Africa, Australia, and Europe. Additionally, the company has six major state-of-the-art research and development (R&D) labs located in India, Israel, Canada, and the US, with capabilities spanning generics, finished dosage development, biological support, and new drug development. With a strong domestic and international presence, Sun Pharma is one of the largest pharmaceutical companies in the country.

Zydus Lifesciences: Reported strong financial performance for Q1 FY25, with consolidated revenues reaching ₹62.1 billion, reflecting a 21% year-on-year (YoY) growth and a 12% quarter-on-quarter (QoQ) increase. The company's operating profit for the quarter was ₹20.8 billion, marking a 38% YoY rise and a 28% QoQ improvement, with the operating margin increasing to 33.6%. Net profit surged 31% YoY to ₹14.2 billion.

During the quarter, Zydus Lifesciences successfully deleveraged its balance sheet by repaying all outstanding debt. Looking ahead, the company anticipates healthy double-digit growth in its US business for FY25, with plans for over 25 product launches throughout the year. Despite facing ongoing FDA compliance challenges, the management remains optimistic about the company's prospects in the US market.

Headquartered in Ahmedabad, Zydus Lifesciences, formerly known as Cadila Healthcare, primarily focuses on the manufacture of generic drugs and has a comprehensive presence across the entire pharmaceutical value chain. This includes research and development, manufacturing, marketing, and the sale of finished dosage human formulations, active pharmaceutical ingredients (APIs), animal healthcare products, and consumer wellness products.

Zydus Lifesciences operates several manufacturing facilities across India, including locations in Ahmedabad, Ankleshwar, and Vadodara in Gujarat; Ponda in Goa; Raigad in Maharashtra; and Solan in Himachal Pradesh.

Cipla Ltd: The third-largest pharmaceutical company in India, Cipla reported quarterly revenue of ₹66.9 billion for Q1 FY25, reflecting a 7% year-on-year (YoY) growth. The company’s operating profit increased by 14% YoY, with operating margins improving to 25.6%. Net profit for the quarter rose by 17.2% YoY, reaching ₹16.1 billion.

Looking ahead, Cipla plans to expand its Medical Representative (MR) base in India to approximately 10,000 personnel and is actively exploring strategic opportunities for both small and large acquisitions within the country. The company is also considering investments in sterile injectable facilities and specialty 505(b)(2) assets in the US, with a focus on innovation and potential acquisitions in India's branded generic space.

The company boasts a diversified product portfolio with over 1,500 products spanning 65 therapeutic areas. The company holds market leadership in several product categories, with well-known brands like Nicotex, Cofsils, and ORS. Cipla operates 47 state-of-the-art manufacturing facilities where it produces generics and active pharmaceutical ingredients (APIs).

Additionally, the company has five research and development (R&D) facilities located across India and the USA, supported by a team of over 1,600 scientists. Cipla's strong domestic presence is bolstered by a wide distribution network that includes retailers, grocers, modern trade, and e-commerce channels.

Navigating challenges

While the Indian pharmaceutical industry is on an upward trajectory, it faces significant challenges. Regulatory hurdles, global demand fluctuations, and intense competition could impact profitability and market share. Moreover, reliance on global supply chains exposes companies to risks, as seen in recent disruptions.

For investors, the Indian pharmaceutical industry offers enticing prospects, but the path to success requires careful navigation. Thorough evaluation of each company’s financial health, market position, and adaptability is crucial. As these pharmaceutical giants continue to expand their global footprint, they must balance opportunity with the ever-present risks in a highly competitive market.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com