Pharma firms have given a pretty impressive performance this year primarily driven by lower raw material costs and enhanced price stability in the US generics market, along with increased sales in other developed regions. Volumes and price growth, combined with an efficient product portfolio mix, have significantly bolstered the overall performance of this sector. The growing demand for healthcare products from companies in the healthcare services sector has further stimulated the overall growth of the pharmaceutical industry. While, increased post-Covid health consciousness has led to increased sector volumes, and government PLI initiatives promise additional advantages for companies in this industry. Experts have a very optimistic view on this space, especially from a long-term perspective.
Glenmark Pharma vs Aurobindo Pharma: Which stock is a better investment for long term?
- In 2023 YTD, both Glenmark and Aurobindo more than doubled investor wealth, rallying around 104 percent each.
Stock Price Trend
In the last one year, both Glenmark Pharma and Aurobindo Pharma gave exceptional returns, outperforming benchmark massively. While Glenmark gave multibagger returns, surging 120 percent in this period, Aurobindo jumped almost 64 percent. In comparison, benchmark Nifty Pharma advanced over 22 percent in the last 1 year.
Meanwhile, in 2023 YTD, both Glenmark and Aurobindo more than doubled investor wealth, rallying around 104 percent each and again significantly outperforming benchmark Nifty Pharma, which added 23 percent in this time.
Glenmark has given positive returns in 7 of the 9 months so far in this current calendar year, falling only in 2 - August (down 2.7 percent) and January (down 9.5 percent). Meanwhile, it rose the most in April, 21.2 percent.
Meanwhile, Aurobindo has given positive returns in 8 of the 9 months of the current calendar year, declining only in January, down 6.9 percent. The stock has added almost 8 percent in September so far, extending gains for the eighth straight month. It gained the most in April, 19 percent.
Glenmark hit its 52-week high of ₹869.95 in the previous session, September 14, 2023. Currently trading at ₹861.60, it has soared 137 percent from its 52-week low of ₹363.80, hit on September 27, 2022.
On the other hand, Aurobindo also hit its 52-week high of ₹907.05 earlier this week on September 13, 2023. Currently trading at ₹901.80, it has also rallied 127 percent from its 52-week low of ₹397.30, hit on February 3, 2023.
Meanwhile, in the long term, 3 years, Glenmark has emerged as the winner, jumping over 75 percent while Aurobindo was up just a little over 9 percent.
In the June quarter, Glenmark Pharma posted an 18 percent decline in consolidated net profit at ₹173.13 crore. The company attributed the net profit drop to an exceptional item of ₹52 crore in the quarter that comprises remediation costs of manufacturing sites in India and Monroe (US). It had posted a consolidated net profit of ₹211.1 crore in the same quarter last fiscal. Meanwhile, its consolidated total revenue from operations during the quarter under review rose 22 percent to ₹3,401.6 crore as against ₹2,777.29 crore in the year-ago period. EBITDA grew 46.2 percent YoY to ₹631 crore, while the EBITDA margins expanded 310 basis points YoY to 18.6 percent.
“We had yet another strong quarter both in terms of revenue and operating margins. The robust growth in sales was led by our branded markets in the RoW (rest of the world) region. Our Europe business performed significantly well on the back of a strong generics portfolio and continued gains in market share, in our leading respiratory brands," said Glenn Saldanha, chairman and MD of Glenmark.
“Going forward our goal remains to sustain the momentum, as Ryaltris continues to meaningfully contribute across all the covered markets. We also remain on track to achieve our objectives for FY24,” he added.
On the other hand, Aurobindo Pharma reported a 22.5 percent decline in its Q1FY24 net profit to ₹540 crore, compared to ₹697.6 crore in the corresponding period last year. The pharma major's revenue from operations during the first quarter of the current fiscal stood at ₹6,850.5 crore, registering a rise of 9.9 percent against ₹6,236 crore in the year-ago period.
Its EBITDA rose nearly 23 percent to ₹1,151.4 crore versus ₹936.5 crore in the year-ago period and its EBITDA margin also expanded to 16.8 percent in the quarter under review, up from 15 percent seen in the same quarter last year.
“We are pleased to start the new financial year on a good note with strong top-line growth and margin expansion aided by improved performance across our key markets. With our product pipeline continuing to advance, and execution of growth drivers proceeding as planned, we are confident that our fundamental strengths position us to create an upward trajectory,'' said K. Nithyananda Reddy, Vice-Chairman and Managing Director of Aurobindo Pharma.
Which stock has better long-term opportunities?
Suman Bannerjee, CIO, Hedonova, a US-based hedge fund has chosen Glenmark Pharma between the two.
“I believe Glenmark Pharma may be a more attractive long-term investment option due to its strong commitment to innovation and global presence. Glenmark's consistent investment in research and development positions it well for sustained growth, while its broader international footprint can help mitigate regional market risks and provide opportunities for revenue expansion,” said Bannerjee.
Gaurav Bissa, VP, InCred Equities, also prefers Glenmark Pharma over Aurobindo Pharma.
Between Glenmark and Aurobindo Pharma, the chart structure is better in Glenmark Pharma. The stock has recently witnessed a 5-year breakout on monthly charts along with strengthening MACD which can boost the stock prices further. The stock is comfortably trading above a major price equilibrium level placed at 700 which is expected to act as strong support in the medium term. The next major hurdle is placed at 1150-1200 zone and a monthly close above will result in a fresh breakout which can push the price higher, said Bissa.
In a contrarian view, T Manish, Research Analyst, SAMCO Securities, has picked Aurobindo Pharma.
Both stocks have experienced a remarkable surge in share prices since February 2023 and are currently trading close to their record highs.
Aurobindo is anticipated to sustain robust 18-20 percent EBITDA margins, driven by a pipeline of high-value products set to enhance their topline. Additionally, the closure of the low-margin contributing plant in Puerto Rico is expected to improve their bottom line. The commencement of commercial operations at the Chinese plant is scheduled for Q1FY25 to enhance supply chain efficiency. Aurobindo Pharma's valuation at 26 times earnings appears reasonable when contrasted with Glenmark's PE of 26.6, taking growth prospects into account. Given the recent stock price rally, it's prudent to anticipate a potential slowdown in the upside moment. Caution is advisable before making any investment decisions.
Domestic brokerage house Prabhudas Lilladher also likes Aurobindo over Glenmark. The brokerage has a ‘buy’ call on Aurobindo and a ‘reduce’ rating on Glenmark.
It believes that Aurobindo Pharma has multiple growth drivers in place with investments in vaccines, injectables, biosimilars, and PLI which are expected to be reflected in FY24. The brokerage firm expects the margin trajectory to improve from FY24 as it believes pick-up in US sales hinges on timely niche approvals and stabilisation of pricing pressure in the base business.
"Our FY24E and FY25E EPS (earnings per share) estimates stand increased by 6 percent and 4 percent, respectively, to factor in higher margins," it estimated.
Meanwhile, for Glenmark, it said that there has been a delay in the monetisation of Ichnos stake sale. The balance sheet has also seen deterioration with net working capital (NWC) days increasing to 157 from 111 days in FY22. Despite the stake sale in Glenmark Lifescience and certain brand divestments in domestic formulation, debt continues to remain at elevated levels. Overall FY23 performance was muted, adjusted for milestone income from Ryaltris. It has factored in a 9 percent EBITDA CAGR over FY23-25E.
Of 15 experts polled by MintGenie, 2 have ‘strong buy’ while 3 have ‘buy’ calls on Glenmark. However, 7 have ‘hold’, 2 have 'sell' and 1 has a ‘strong sell’ call.
Of 25 experts polled by MintGenie, 6 have ‘strong buy’ while 9 have ‘buy’ calls on Aurobindo. However, 7 have ‘hold’, 1 has 'sell' and 2 have ‘strong sell’ calls.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.
marketsPrabhat Ranjan,Vijay Chauhan