BofA Reinstates Cover on Gland Pharma, Glenmark Lifesciences with ‘Buy’; “Neutral” on Divi

BofA Securities reinstated coverage of active Indian pharmaceutical companies and contract drugmakers, citing lower price risk and growing opportunities.

It has a “buy” rating on Gland Pharma Ltd. and Glenmark Lifesciences Ltd. and a “neutral” call on Divi’s Laboratories Ltd., the brokerage said in its March 23 report.

Although most major Indian pharmaceutical companies do not fall into the “defensive category” of good returns at low risk, the report indicates that two categories have seen a significant revaluation over the past five years:

According to the report, Indian API/CDMO companies have gained popularity as they face less downside risk from the US generic bear cycle. By comparison, growth The outlook for most of India’s generic-focused pharmaceutical companies is sensitive to factors such as price erosion, new approvals, competition in key products and US regulatory scrutiny.

Reliance on China for bulk drugs and Asia’s growing share of CDMO presents an opportunity for Indian companies, according to the report.

The source diversification driven by the “China plus one” strategy and the government’s production-related incentive scheme for bulk drugs creates a large domestic market for API players, he said.

This growth opportunity is also reflected in the capital allocation planned by API/CDMO companies to support higher volumes in existing portfolios, portfolio expansion and upstream integration of critical products.

However, the supply chain risk reduction effort must be supported by scale and cost competitiveness to ensure sustainability, even if China’s capacity were to return, he said.

Key highlights from the BofA Securities report on certain pharmaceutical stocks:

The report states that Divi’s Labs is trading online with its global peers, Gland Pharma is discounted given its generic focus. Glenmark Lifesciences offers a favorable risk/reward ratio at the current price.

“We are below the street on Ebidta margins for Divi’s and Gland Pharma,” the brokerage said.

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