Summary of Future of Healthcare, Pharma & Allied Industries – CorpGini Zoom Webinar

Summary of Future of Healthcare, Pharma & Allied Industries – CorpGini Zoom Webinar

Summary of Future of Healthcare, Pharma & Allied Industries – CorpGini Zoom Webinar

Disclaimer: No stocks discussed are recommendations – please consult your financial advisor.

Manoj Garg – White Oak Capital:

  1. Within Indian & Emerging market formulations businesses, we prefer branded generics vs generic generics and within branded we prefer chronic diseases vs acute
  2. For US businesses – we see vertical integration – as in US price is most important for commodity products – but this isn’t the only factor. More opportunities in complex (respiratory, injectibles, derma, etc) areas – so we need companies with R&D & Balance Sheet. Indians were doing well in R&D and complex areas, we were doing capex but due to supply side consolidation and regulatory strictness, we faced some issues. But if u look at complexity of business, Indians will do well.

Anmol Ganjoo – JM Financial:

  1. In Pharma, competency build up takes time and only after that are they able to monetize.
  2. To deliver in terms of profitability, will take time too
  3. In 2015, the thesis were simple – the top 4 cos, the US revenues they had and the multiples they had – we felt the growth that they had to deliver to justify the multiples was too high. So similarly, if you went back 9 or 12 months back and saw a fresh look, what you would discover is the ask rate for these cos to surprise on the upside was limited.

Aditya Khemka – DSP:

  1. An average pharma co in India doesn’t just do Indian formulations or APIs, or emerging markets or US formulations, etc. It does everything and reports a common ROE
  2. So we need to dig through and see individual segments like how we value big conglomerates.
  3. Some of mid & large pharma cos make low profit or even loss in US markets! So how can we give it a multiple?
  4. So you take a pharma doing 50% revenue from US, 30% from India and 20% from emerging – the ROE in the US is really really poor. If you strip that US biz out, it’ll look far closer to a FMCG company.
  5. Take IPCA Labs – in FY 14 the EPS was Rs 42. Then USFDA, WHO, UKMHRA troubles came. If you bifurcate that 42 into domestic and exports it was Rs. 30 & 12. Multiple was 22x. What happened after the bans came in – the consol. EPS was Rs. 6 – but nothing changed in the domestic biz! The export EPS went down from Rs. 12 to -24. If you give the loss on exports a multiple, it is a mathematical crime.

Sailesh – Nippon AMC:

  1. Major challenges come in US regulatory challenges – lot of capital comes in. Cos have invested large sums of money especially in speciality businesses and this is important because this is where next set of growth will come from. Indian cos didn’t have resources 10 years back to do this.

Madhu Kela – MK:

  1. In 2009, pharma weightage was 2.4% – tech had 13% and banks/financials had 25%+ weight. By 2015, pharma/healthcare weightage was 7.3% and overall weightage of financials had come down. By March 2020, pharma weightage came back to 2.7%
  2. Generally, when a sector gets re-rated, there is a high possibility that it enters into a bubble zone. Like small financials got 6-7x book value when financials turned bullish. But I think it is premature to say that the sector has done what it has to do. Even though stock prices have gone up, many are still within 10PE.


  1. Valuations are on 2 sides – absolute and relative – on a relative basis, pharma has traded at a 40% premium to indices, and that has come down. But in absolute terms, even in good times, there has been a big dispersion as to how cos trade at. Its because these companies are not homogenous and have a different market profile.
  2. We should instead look at sustainability of earnings and where are the likelihood of surprises. 

Manoj Garg:

  1. We have to focus on execution capability of management and their response to events.2. Many times media comes out and says this co got Form 483 – actually it is common to get 483. What is imp is how critical is the obseration.3. In Sun Pharma’s case, the issue at Halol went for 2-3 years. This was also the time when the company was investing for speciality and innovative opportunities in US. So price advantage for taro came down + Halol issues + record capex for US didn’t materialise due to regulatory issues.


  1. You have a bull market for many years and are giving long term 30+ multiples for short term performance, so price correction was evident. We have to see sustainability of earnings. So when we in a positive cycle, little high multiples isn’t a constraint but at the peak of the cycle, the valuation went awry and entering late is dangerous. So its more of what valuations – early cycle + 15-18% earnings CAGR, the sector is well positioned.


  1. Firstly to identify companies – we analysed domestic biz – we found IPCA is top 5 quality franchise in terms of cash flow, ROEs and that biz is going to grow. On the competence of whether they will turnaround, we didn’t know. But in export market – its a price driven market. In Wockhardt’s case, their business quality wasn’t good enough.
  2. In export biz, when it is price that sells product, you need to have low cost. Take example of HCQ, ipca was 8th or 9th entrant, but soon they had 80-90% market share. We saw all ingredients of a good quality biz.


  1. Investor’s perception is that if a biz hasnt demonstrated good ROE’s in 2-3 years time frame, then it turns out of favour.
  2. But now is the time for pharma – we have companies doing 5000-6000cr turnovers easily. We can enter the next league into top pharma cos globally.3. It depends on capital allocation.

Madhu Kela:

  1. Mid-cap companies have shown signs of early revival and getting into a bull run – it is a problem with larger cos and thats why it looks like the sector hasn’t done well.
  2. The way I look at it is, we are in an era where the banks are giving 3% return – where we are made to invest in gold at 45k, RE isnt making money and bonds are losing money.
  3. Take Granules, it went from 160cr PAT to 330-350cr PAT. Can it do 500cr PAT in 2 years? Yes, it is possible and if you take that into account, then it is trading at 8PE multiple.
    Each one of us need to do our numbers and see what risk we are taking.


  1. On one side you want to look at pharma companies that are innovative but at the same time cos getting into an investment cycle that doesnt generate returns in the short run, then we have a Sun pharma like situation.
  2. Top 3 picks – Sun, Cipla, Alembic.

Sailesh – underpenetrated secor, great opportunity, possibility for surprise
Aditya – look for leading domesic cos + cost strength in exports
Anmol – surprises will be on upside + make sure you pick right prices
Manoj – bottom up stock selections, lot of money to be made

Varinder Bansal

Managing Partner, Pantomath Asset Management. Ex-Corporate Editor & Head of Research, CNBC-TV18

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