5 Stocks to BUY during Coronavirus (COVID 19) pandemic
The Indian economy has performed relatively better than expected in 2HFY2021. The efforts taken by the GoI in the FY22 Budget marked the clear path for driving growth whilst compromising on fiscal prudence in order to drag the economy out of the Covid led slide. However, the current Covid second wave has re-imposed fresh partial lockdowns, limiting the economic activities. As some economic & health indicators are already pointing towards downward revision in the GDP forecast, investing in the covid resilient sectors would be an ideal strategy to tide the second wave of Covid. We believe, sectors like Healthcare, Pharma, Diagnostic & selected FMCG will continue to thrive during the FY22.
|Recommended Stocks||CMP (Rs)||Target (Rs)||Upside|
|JB Chemicals & Pharmaceuticals (JBCP)||1,372||1,680||22.40%|
Source: 5paisa Research, * price as on 19th May ,2021.
Cipla is one of the largest Indian pharma companies. It is a major player in the domestic formulations market, which contributes ~39% of its total revenue. Cipla makes drugs to treat cardiovascular disease, arthritis, diabetes, weight control, depression and many other health conditions. We are positive on the stock due to strong build-out expected in the US business led by the inhalation portfolio, where we believe respiratory products alone can add incremental sales of USD230-250mn (40-45%) to the US business by FY25E and drive 12% cc Cagr (18% incl. Revlimid) in US sales over FY21-23E. Sustained traction in chronic therapies will drive 7.5% Cagr in India sales over FY21-23E, despite the higher base. We believe US respiratory launches, synergies from the One-India strategy and further cost optimization would drive a sustainable increase in return ratios over the medium term. The stock trades at 24.3x FY23E EPS.
JB Chemicals & Pharmaceuticals (JBCP)
JBCP is a 40-year old pharma company with several well established brands in the domestic market and wide geographical presence in the both regulated and semi-regulated markets. While JBCP has created strong brands in the cardiac & gastro segments in India, focus ahead will be to diversify into diabetes, nephrology, paediatrics and respiratory. Expansion into these therapies will not entail an additional sales force, as mgmt. is re-aligning the GTM strategy for its rep team, by combining existing divisions. JBCP also intends leveraging its relationships with 0.3m doctors, to drive penetration in new therapies. Mgmt. is targeting 12-14% growth in its India PCPM over medium term, driven by 6-8 annual launches & increasing contribution from chronic therapies. Incremental R&D investments and BD opportunities will help JBCP augment its product portfolio and drive better growth in its branded generics businesses. Two new product launches are also planned in Russia in FY22, while JBCP intends to ramp-up its US ANDA filings to 4-6 from 1-2 pa, going forward. Although JBCP will look to complement its organic growth through acquisitions, management stated that 50% of the incremental capital allocation will be dedicated to the India business, where it will look to acquire brands/mid-size companies and, possibly, enter into inlicensing deals with MNC companies for the cardio-diabetes.
Apollo Hospitals is an integrated healthcare provider, with services ranging from hospitals, retail pharmacies, health insurance, clinics etc. The company is a pioneer in corporate hospitals and forms the largest hospital chain & organized retail pharmacy chain in India. Apollo’s overall hospital occupancies improved to 63% in 3Q from 56% in 2Q. While non-Covid occupancy stood at 60% in 3Q, it was already at 67% in Dec-20. Mgmt. indicated that occupancies should reach pre-Covid levels of 68-70% by 1Q/2QFY22, led by pick-up in international patients, domestic travel and improving surgical volumes. Healthcare services margins improved QoQ, from 11.5% to 18.5%, led by higher ARPOB and increase in surgical volumes. Mgmt. targets expanding margins for mature hospitals to 23-24% (current 20- 21%) and for new hospitals to 15% (current 13-14%) over the next 12-18 months, led by international patients and high-end surgeries. Kolkata hospital expected to contribute Rs800-850mn Ebitda in FY22ii (vs. nil in FY21). Pharmacy margins are also expected to improve, to 7% in FY22E from 6.5% in 3Q. Of the Rs11.7bn QIP proceeds, Rs4.1bn will be utilized for acquisition of 50% stake in Kolkata hospital and Rs1.5bn each for Apollo 24/7 and the diagnostics business Apollo aims to achieve preventive healthcare revenue of Rs10bn in the next 3 years, from Rs2.5bn currently. It also aims to scale diagnostics revenues to Rs5bn from Rs1.6bnpa, by deepening presence in South/East market.
Dabur India is one of the largest FMCG companies in India, with interest in health care, personal care and food products. Building on its legacy of quality and experience of over 100 years, Dabur has a number of powerful brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola, Real, etc. The company primarily operates in four segments i.e. consumer care, international business, foods and retail. Its international business spans across Southeast Asia, MENA and USA, and contributes around 30% to its total revenue. Covid tailwinds resulted in acceleration in the healthcare portfolio, the momentum has sustained at a high level for the third consecutive quarter in categories such as honey, chyawanprash, OTC and ethicals. Growth is likely to settle at a lower, but robust level in this portfolio. Dabur is ticking the right boxes in terms of riding the healthcare momentum and has accordingly stepped up ad-spends intensity. Recovery in hair care, juices and international has further sweetened the performance. The management highlighted that input cost inflation has inched up to 5- 6% in categories such as honey, amla, herbs and spices and the company would look to pass it on to consumers. Also, management indicated that ad-spend intensity would remain high to support brand investments and new launches. Dabur aspires to increase its ad-spends as a percentage of sales to ~11.5-12%, similar to HUL.
Thyrocare is the largest B2B diagnostics player in India primarily serving smaller standalone labs, hospitals, nursing homes and doctors. Thyrocare operates a Centralised Processing Laboratory (CPL) at Navi Mumbai, which is supported by 11 Regional Processing Laboratories (RPLs). B2B segment accounts 80-85% of Thyrocare’s pathology revenue, while Thyrocare has also created a strong brand for itself through ‘Aarogyam’ test profiles in the wellness segment. Thyrocare’s strong B2B model and industry leadership in wellness testing allows it to process high volumes of routine tests which, along with lower sample acquisition costs, drive significant operational efficiencies and 40% margins for Thyrocare. While its revenue growth had slowed during FY17- 20, mgmt. is striving to drive improved accessibility for the brand by doubling company’s network of branded collection centers to ~1,000 TSPs by the end of CY21. While network expansion will contribute significantly to company’s growth from FY23E, it will also help Thyrocare to expand its customer base, improve TAT and further optimize logistics costs. Thyrocare trades at 30-50% discount to its B2C peers owing to higher pricing pressures in B2B/wellness segment, Thyrocare’s unparalleled focus on operating efficiencies enables it to offset such pricing impact. We expect 12% revenue Cagr for Thyrocare over FY21-23E.
We are glad to announce that our recommended Portfolio has performed well wherein almost all the stocks in the portfolio have achieved the desired targets and have given strong returns throughout the last year. Check our performance of COVID-19 portfolio that was suggested in 2020
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