Preliminary analysis suggests that this new variant may circulate faster than the delta version and is also far more contagious. Furthermore, it has been said, although not scientifically confirmed, that existing vaccines may be less effective than the newer version.
At a time when India was recovering from the effects of the second wave, the new version has added to the uncertainty. In the same week, the GDP figures for the July-September quarter of FY 2022 showed a growth of 8.4%. This is the fourth consecutive quarter of positive growth after two quarters of contraction last year.
Analysts predict that India will hold onto its title of fastest growing economy in the world till fiscal year 2023, as all restrictions are lifted and growth continues.
But with new tensions emerging, the government may be forced to roll back restrictions if things spiral out of control.
All the major sectors may get affected due to limited activity which in turn will bring down the growth. However, there are some sectors that enjoy relatively greater resistance to another lockdown.
One of them is the healthcare space.
The pandemic has acted as a catalyst of positive change to shape the healthcare sector across the globe.
Here are some stocks to watch in the healthcare and diagnostic space in India as the new ‘worry type’ spreads.
#1 Cipla
Cipla is a global pharmaceutical company with a presence in over 80 countries, with 46 manufacturing plants producing more than 1,500 products. Its product portfolio includes generics and drugs in key therapeutic segments.
In India, Cipla is one of the largest pharmaceutical companies and the largest Indian exporter to emerging markets.
During the pandemic, Cipla launched 7 products as a part of its COVID-19 portfolio. These include medicines, sanitizers and antigen and anti-body testing kits.
Despite the pandemic, it entered into several partnerships to market products in oncology, biosimilar and metabolic diseases.
Cipla saw a strong 12% YoY (YoY) growth in revenue in FY21, mainly due to respiratory unlocking in the US and their COVID portfolio.
During the same period, Cipla’s earnings before interest, tax and depreciation (EBITDA) margin rose by 350 basis points to 22.5% from 18.9%. Margins expanded due to lower expenses on account of cost optimization initiatives and reduced ground operations due to the lockdown.
The company’s net profit margin stood at a historic high of 12.6% in FY21 as against 9% in FY20. Operating efficiency, and lower finance costs on account of prepayment of loans have resulted in higher net margins.
During the year, the company launched 9 Abbreviated New Drug Applications (ANDA), filed for 8 ANDA and obtained approval for 7 ANDA.
The pandemic has prompted the company to adopt digital routes to run its business in terms of meeting doctors or organizing conferences. This will reduce the cost to some extent and is expected to lead to better margins for the company.
#2 Dr. Lal Pathlabs
Dr Lal Pathlabs is one of the top diagnostic chains in India. It provides more than 5,000 diagnostic tests, related health tests and services in 3,705 centres.
During the pandemic, the company expanded its reach both digitally and physically to increase COVID testing.
Despite the pandemic, the company added 15 labs, 600 collection centers and 2,200 pickup points in FY21.
Dr Lal Pathlabs’ revenue grew by 18.9% in FY21, as compared to a growth of 10.6% in FY20. The revenue growth was led by a revival in their non-Covid revenues.
The EBITDA margin for FY21 was 29.3% as against 27.5% in the previous fiscal. There was a soft margin growth due to increased costs with respect to logistics and information and technology infrastructure.
The company’s net profit grew at 30.3% year-on-year, despite increase in cost. Net profit margin also came in at a high of 18.8% as against 17.1% in the previous year.
The share of unorganized players in the diagnostic space is very high, leaving more scope for organized players like Dr. Lal Pathlabs to capture considerable market share.
#3 Alkem Laboratories
Alkem Laboratories is the fifth largest Indian pharmaceutical company in terms of market share. It has 20 manufacturing facilities and 6 R&D facilities in India and the US. It also exports to more than 40 countries.
The company has over 800 brands in its product portfolio. Annual sales of 12 of these brands are . is more than 1 billion
There was little impact on the functioning of the company during the lockdown. However, it rapidly improved during the unlocking phase.
Alkem Lab’s revenue grew 6.2% in fiscal 2021, up from 13.4 percent in the previous year. Due to declining sales of acute therapy prescription drug in India, the company saw less growth. However, sales growth was mainly supported by their international business.
The EBITDA margin for FY21 is 21.9%. Margins grew from 17.72% in the previous year. The margin expansion can be mainly attributed to lower marketing and travel expenses due to the lockdown.
Its net profit grew by 40.6% during the year with a margin of 17.9%. Profits increased due to lower tax payments due to investments in manufacturing facilities.
The company sees good growth opportunities as it has filed over 152 ANDAs with the USFDA and received around 110 approvals.
#4 Thyrocare Technologies
Thyrocare is a pan-India diagnostic chain that offers over 279 tests and 79 test profiles to detect multiple disorders.
It operates its Centralized Processing Laboratory (CPL) round the clock to meet the needs of the customers. The company also has a Regional Processing Laboratory (RPL) in metro cities to ensure speedy processing.
Thyrocare has a pan-India collection network which it supports through a logistics network and IT infrastructure.
During the pandemic, the company set up Zonal Processing Laboratories (ZPL) for COVID testing and other advanced testing. However, due to the lockdown, some of its collection centers ceased to operate completely.
The company reported 14% revenue growth in FY21, mainly due to increase in clinical revenue due to COVID-19 testing.
However, the EBITDA margin declined to 34.4% as against 39.5% in the previous year. The company’s margin contracted primarily due to an increase in expenses.
Overall, the company’s net profit grew 28% YoY. Net profit margin also increased to 22.9% as compared to 20.4% in the previous year. Higher net profit margin was achieved due to lower tax expense.
The company plans to capture the growth of the organized segment in the diagnostics segment and enhance its product offering.
It is also developing cost-effective PET-CT scans through its subsidiary and plans to expand this segment.
#5 Morepen Labs
Morepen Labs is a pharmaceutical company in India that manufactures Active Pharmaceutical Ingredients (APIs), generic and branded formulations, and home health and diagnostic products.
It exports its products to over 80 countries and leads the market in the manufacture of select APIs.
The company’s revenue grew 39.6% in FY21 from 11.7% in the previous year. Revenue growth was led by its diagnostics and API business.
During the year, the company maintained its expenses at the same level as in the current financial year. This led to an increase in EBITDA by 67% YoY and improvement in EBITDA margin by 1.9% YoY.
The company’s net profit also grew at 189% YoY as against 16% YoY growth in the previous year. Net profit margin stood at 8% against 4% in FY20.
The company’s diversified product portfolio has helped boost its revenue despite the pandemic. It plans to expand its operations at the same pace to capitalize on the demand for better healthcare.
in conclusion…
The healthcare and diagnostics industry is among those expected to remain resilient to another lockdown.
Of course, rising concerns could have an impact in the near term and companies need to step up their plans to deal with it. Sectors like FMCG, packaging, e-commerce companies may also remain flexible.
The pandemic has changed the way companies do business. If you are planning to invest now, keep this in mind investing in companies Those who can take advantage of changes in the economy and advance their long-term growth prospects.
Do not try to time the market or make hasty decisions. Instead aim to stay invested for the long term as the short-term volatility calms down.
In short, don’t be afraid of Omicron. If the situation worsens, then you will get a good opportunity to buy the stock.
Here’s what Aditya Vora, Research Analyst, Equitymaster, writes about your portfolio position and risk mitigation in the latest COVID edition.
Never buy/sell shares based on speculation, leading to panic and excitement. Let the trend calm down.
We don’t know what effect the new version will have on the economy. It is too early to guess.
In the process, we may not be able to hold the bottom or be able to sell at the top. However, it is better to ride a trend rather than a falling knife.
whereasthe key to building long term wealth
One is to do bottom-up analysis, market conditions and risk management are also important to give you a margin of safety.
This article is syndicated from Equitymaster.com
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