Stocks to buy: From Cipla to Fortis, ICICI Securities bets on these 8 firms in healthcare space

Cipla: The brokerage reinitiated coverage on Cipla with a BUY rating and target price of ₹1,169, indicating an upside of 26 percent. It is bullish on the stock given earnings sustainability, better visibility in the US and robust free cashflow generation. Cipla has proved its mettle in the respiratory segment in US through launch of complex products like gPulmicort, gProventil, Albuterol and Aformoterol, noted the brokerage. It further added that the monetization of pipeline assets will aid the company’s US business touch new heights, while better traction in India and cost curtailment efforts will likely sweeten margin profile by 50-80bps every year. Better performance in key geographies of US and India may aid a revenue CAGR of 11.2 over FY23-25E while EBITDA and PAT will grow at 17.6%/21.5% over FY23-25E, it forecasted.

Sun Pharma: The brokerage has reinitiated coverage on the stock with a BUY rating and a target price of ₹1,160, indicating an upside of 24%. As per the brokerage, Sun Pharma provides a steady combination of matured branded generics and fast-growing new-age businesses. Branded generics ensure steady cash flow while Sun is ahead of most of its India peers in the US specialty race, it added. Further, the company has restored its R&D investments for specialty businesses, which may hurt margins in the near term. ICICI Securities remains positive on Sun’s long-term outlook considering its strong India franchise and scale-up in the specialty business. The recent correction in stock price (5% in 3 months) has also made valuations reasonable, stated the brokerage.

Zydus Lifesciences: The brokerage has reinitiated coverage on the stock with a BUY rating and a target price of ₹610, indicating an upside of 17.5 percent. As per the brokerage, Zydus is on track to monetise its US pipeline post clearance of the Moraiya plant and its near-term performance will be driven by products like gTrokendi, REMS products, gRevlimid and other 30-35 launches annually. It believes Zydus can register revenue growth of 10.1% over FY23E-FY25E backed by 9% CAGR in the US and 10% CAGR in India. It further added that the traction in the US is expected to drive a 300bps improvement in margins till FY25E even after inching up of R&D spending on specialty products.

Ajanta Pharma: The brokerage has initiated coverage on the stock with a BUY rating and a target price of ₹1,580, indicating an upside of 24 percent. The brokerage noted that Ajanta has a discerning management, prudent fiscal discipline and a brand-driven business model, which is reflected in its historical performance, based on which the company has commanded premium valuations (~30x P/E). While historical growth has been superlative, ICICI Securities believes, current valuations are attractive as the stock is trading close to a 36% discount to its historical multiple. Traction in the branded generic portfolio and improved utilisation in Dahej and Guwahati plants may ensure that margins sustain within 25-26%, going ahead, it added.

Abbott: The brokerage has retained its BUY rating with a target price of ₹27,000, indicating an upside of 27 percent. Despite various hurdles, the brokerage highlighted that Abbott has grown its revenues in each of the last 22 quarters. It also noted that the management has laid down a roadmap for driving growth in each of the segments it operates and is eyeing 15 new launches every year, of which, 3-5 would be products that are about to go off patent every year. Management aspires for a revenue CAGR of 13% to US$1bn by FY26 while profits will likely grow faster. Abbott showcases a balance sheet trait of an MNC and the growth profile of an Indian company while its strong set of brands, efficient field force and patient-centric approach has helped it overcome threats from generics in its key brands, said the brokerage.

Krishna Institute of Medical Sciences: The brokerage has reinitiated coverage on the stock with a BUY rating and a target price of ₹1,795, indicating an upside of 17 percent. KIMS has a strong acquisitive history with a proven track record of execution, said the brokerage. It is positive on the company’s long-term outlook considering strong brand recall in its home markets, expansion in adjacent geographies, strong execution, prudent capital allocation and healthy margins. Consolidation of Sunshine Hospitals and Kingsway Hospitals, Nagpur, will drive a revenue CAGR of 16.3% over FY23E-FY25E. EBITDA margin, however, may decline by 50bps to 26-27%, it predicted. 

Fortis Healthcare: The brokerage has reinitiated coverage on the stock with a BUY rating and a target price of ₹375, indicating an upside of 33 percent. As per the brokerage, Fortis is amongst the few hospital chains in India to have over 75% share of operational beds in metro cities and will add 1,300 beds in the next four years in metros, which will provide a strong impetus for future growth. Value unlocking in SRL and resolution of outstanding litigation will lead to a rerating in the stock, it added. 

Dr Lal Pathlabs: The brokerage has reinitiated coverage on the stock with a BUY rating and a target price of ₹2,385, indicating an upside of 18 percent. The brokerage stated that Dr Lal has shifted its focus towards more specialised tests due to the increasing competition from online aggregators in routine tests. However, it added that a pan-India player like DLPL is able to grow its volumes faster despite constant competitive threat due to strong brand equity, focus on geographical expansion, mix shift towards high-realisation tests, and strong return ratios with healthy free cash flow. It expects revenue, EBITDA and PAT CAGRs of 16.2%, 20% and 33.3% respectively, from DLPL over FY23-FY25E, driven largely by volume growth.