Cadila Health Care Vs IPCA Labs - The Major HCQ Producer
India has emerged as the biggest supplier of HYDROXYCHLOROQUINE to the US drug market for treating COVID-19 has triggered the investors’ interest in Indian pharma stocks. The sector saw a relief rally last week with some of the companies reaching to 52-week highs or closer to that 52-week highs.
The change in the sentiment of investors is ahead of any major changes in fundamentals or any numbers of the company is surprising but also justifiable.
In 2015, the pharma stocks were trading at the peak and gradually beaten due to regulatory actions, USFDA issues, etc. But COVID-19 turned these stocks to bullish. In the global lockdown scenario, pharma and healthcare services is at the top layer of essential services. Lockdown is not going to have any earnings impact in the pharma sector stocks.
Despite nationwide lockdown, the domestic growth is expected to remain stable.
Exports growth is also expected to remain strong because of currency benefit, slowdown in competition due to delay in new approvals which is beneficial for the existing players and expected demand continuation across the globe.
Some of the concerns in the pharma sector:
Domestic Demand: The demand is normal as of now but movements of MRs are restricted. Companies are using telephonic and other digital platforms for sales. Supply related issues will be there till the lockdown ends. The new launches are getting delayed which will impact the overall growth. One can expect normalized growth from Q2FY21 onwards.
Export Demand: Complete lockdown on any international trade will have an impact on business in future. Rupee depreciation will give benefits to these companies.
India – a new market for APIs: Due to recurring issues in China like the shutdown of operations due to environmental concerns earlier and now due to COVID-19, most formulation manufacturers are now looking at Indi as an alternative source of APIs.
Here we have picked up 2 reputed companies which we think can generate good returns in future
Recently, you all might have heard the name of one drug Hydroxychloroquine which is currently used to cure fight against coronavirus. I am sure you all will be surprised after knowing the name of 2 companies which we will be focusing on. Hydroxychloroquine, a drug whose largest manufacturer is an Indian firm, has shot into the limelight after the US president advocated it as a potential therapy for COVID-19.
Ipca is the biggest producer of the drug in the world. Cadila Healthcare, based in Ahmedabad, likewise is a major player. Both are gearing up to meet the demand and have said there will be enough supplies.
Thus Here, we discuss and compare the fundamentals of the IPCA and Cadila:
Zydus Cadila, one of the two largest manufacturers of the key hydroxychloroquine (HCQ), has ramped up its production by nearly 10 times (15 crore tablets) per month in view of the increased demand expectation due to rising cases of COVID-19.
Significantly, the Ahmedabad-based company’s accelerated research for a vaccine on COVID-19 has entered the animal testing stage. If the results are successful, the company said it is hopeful of its launch by January 2021.
Valuation Rationale
(Rs. in crores)
Particulars
|
Ipca Lab
(Consolidated)
|
Cadila
(Consolidated)
|
Revenue
|
3,773
|
13,366
|
Expenses
|
3,225
|
10,984
|
Profit Before Tax
|
548
|
2,382
|
Provisions
|
104
|
530
|
Profit After Tax
|
444
|
1,852
|
EPS (TTM)
|
49
|
12
|
EPS (FY 22 Expected)
|
79
|
21
|
Book Value
|
248
|
114
|
Price to Book Value (P/B)
|
6.25
|
3.07
|
PE Ratio (TTM)
|
32
|
29
|
Target PE Multiple
|
24
|
18
|
M Cap
|
20,000
|
36,000
|
CMP
|
1550
|
350
|
Target Price (EPS of FY 22 x Target Multiple)
|
1800 – 1900
|
370
|
Shareholding of Promoter
|
46.07%
|
74.88%
|
Shareholding of FII / FPI
|
13.99%
|
4.58%
|
Shareholding of DII
|
25.93%
|
12.62%
|
Dividend Yield
|
0.19%
|
1.00%
|
Face Value
|
2
|
1
|
Both companies are fundamentally good. Here we have brought all fundamentals of the companies. You also can do your own analysis and can for SIP or invest in them if you find them at a lower price.
Disclaimer: This is my personal opinion and research based on the annual report. Please do not consider this any recommendation. Do your own analysis and consult your financial advisor before investing in both the above stock.
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