Laurus Labs is the only pharma stock to give double-digit returns in 2022 year-to-date. The stock rose a little over 13 percent in 2022, in comparison to a 1.5 percent decline in Nifty and a 3.75 percent decline in the Nifty Pharma index in this period.
Among peers, only Sun Pharma and Cipla were the other 2 pharma stocks in the green in 2022, up 9 percent and 7 percent, respectively, while all the other constituents of the Nifty Pharma index gave negative returns in 2022.
Ongoing price erosion due to a surge in raw material price and a decline in new launches in the US market have led to a muted performance in the pharma space.
One must note that the pharma index performed tremendously when the COVID pandemic hit. The pharma index jumped 70 percent between March and December 2020. In the last 2 years, it has advanced 82 percent. In comparison, Nifty had added 53 percent in the last 2 years.
After a spectacular run in the past two years, concerns over margin sustainability have catalyzed a correction in the pharma index. The index now trades near its 10-year average forward P/E of 25x.
Companies are addressing cost pressure issues via pass-on to customers and better inventory management. While near-term strain may exist, better pricing in India and limited launches in the US may help the pharma firms post a 19 percent EPS CAGR in FY22E-24E, domestic brokerage Elara Capital noted.
Despite the headwinds, Laurus continues to outperform. Domestic brokerage house Sharekhan remains bullish on the stock and believes that a strong demand environment well complemented with a capacity expansion would drive the growth ahead for Laurus.
"The company is fortifying its position in full dosage and synthesis segments, strengthening its presence in non-antiretroviral and growing in a new area of biologics, through Laurus Bio," it said.
Meanwhile, Elara Capital noted that while the company enjoys significant market share in key active pharmaceutical ingredients (API) for the antiretroviral (ARV) market, it has also been expanding its presence in the non-ARV API segment.
"Laurus enjoys a tech-savvy team, which combined with strong R&D and large volume manufacturing capabilities have made it successful. The company is investing Rs1700 crore in capex across formulations, non-ARV APIs and synthesis business. Laurus has also forayed into new-age businesses of biologics and cell therapy via acquisitions. Its superior margin profile of over 30 percent is a result of strong process chemistry, R&D focus and new technology adoption," it said.