Pharma sector made a solid comeback after being lacklustre for most of 2019. While other sectors, especially retail facing ones, whose performance depended on footfalls underwent tremendous stress in the period immediately following lockdown, healthcare demonstrated solid remarkable resilience. Indeed, the essential nature of the industry came to the fore, as frantic pre-buying of chronic drugs (diabetes, cardiac, blood pressure medications) drove growth in March.
Subsequently repurposed COVID drugs like Favipiravir, Remdesivir and HCQS led to robust revenues in domestic and especially export markets. In 2020, domestic therapeutic growth came from cardiac, diabetes and vitamins as immunity boosting products got a fillip from pandemic-induced buying. Most of the pharma stocks including largecaps like Dr Reddy's Labs, Aurobindo Pharma, Cipla, Lupin and Sun Pharma rebounded sharply from March 2020 lows though the real outperformance came from API companies like Laurus Labs and Divis Labs which would have benefitted from pricing tailwinds in API.
Hospitals and diagnostics, while initially bore the brunt being retail driven businesses, rebounded subsequently as non-COVID business reached 95 percent of pre-COVID level, leading to catch up rally in Dr Lal PathLabs, Metropolis Healthcare and Apollo Hospitals.
We expect COVID-led drug tailwinds and pre-stocking to have ended in H1 CY20. 2021 could bring the focus on vaccine manufacturing and distribution capabilities, especially if a large 30-40 percent of population is to be inoculated. We reckon companies like Dr Reddy's Labs, Aurobindo Pharma, Cadila Healthcare and Wockardt would be key beneficiaries apart from Serum in the unlisted space. Albeit, we note that any vaccine related opportunity would be one-time in nature and accordingly we do not ascribe any significant weightage to vaccine opportunity when picking stocks for 2021.
Our top picks would be companies with large and fast-growing brands in domestic market like Torrent Pharma while Aurobindo Pharma and Alembic Pharma fit the bill to play the US generics growth especially in injectables and sartans opportunity respectively.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.