Recommendation from Pharmaceuticals & Drugs Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

MOREPEN LABORATORIES : ON A ROLL

HERE IS WHY
✓ Expertise in producing high-quality generic drugs
✓ Ambitious expansion plan
✓ Impressive increase in revenue

The Indian pharmaceutical industry is booming! It’s expected to grow significantly in the next few decades, reaching a market size of USD 130 billion by 2030 and even USD 450 billion by 2047. This growth is fuelled by exports, with India being a major player in the global pharmaceutical market. In short, the Indian pharmaceutical industry is on a roll, making significant strides in quality, affordability and innovation. And with the biosimilar market growing rapidly, the future looks even brighter for this industry

As such, our choice for a low-priced stock is Morepen Laboratories Ltd. Established in 1984, the company is a rapidly growing pharmaceutical manufacturer with a global vision and operations spread over 50 countries. With USFDA-approved manufacturing facilities in Masulkhana, Parwanoo and Baddi, the company focuses on manufacturing high-quality generic drugs and pharmaceutical formulations. Morepen Laboratories is the largest producer of ‘Loratadine’ globally, with over 90 per cent market share in the U.S.. The company has introduced new products and is working on new product pipelines.

It has filed 14 patents in the last three years, including an international patent on a new amorphous form of ‘Lipitor’. With a large distribution base in India, Morepen Laboratories has partnerships with around 80,000 doctors and pharmacies. The company plans to increase its API capacity from 400 KL to 600 KL and expand its medical device capacities, including glucometers and glucose strips. These new capacities are expected to be operational within 12 to 18 months. The company is positioned as a leader in the medical devices sector, accounting for over 30 per cent of its total revenue.

The market in India is projected to grow from USD 11 billion to USD 50 billion by 2030, with a long-term goal of reaching USD 250 billion by 2057. The company is focusing on backward integration to enhance production capabilities and reduce dependency on external suppliers. It is investing in advanced manufacturing technologies, including robotic machines for chip mounting. The management of the company is optimistic about achieving revenue growth of 15 per cent to 20 per cent for FY25 and is also open to acquisitions aligned with its strategic goals.

In Q1FY25, on a consolidated basis, its revenue increased by 13.51 per cent YoY to ₹455.22 crore compared to ₹401.04 crore from the previous year’s same quarter. On a sequential basis, the revenue increased by 7.6 per cent. The PBIDT excluding other income increased by 97.87 per cent to ₹51.62 crore YoY as compared to ₹26.09 crore from the previous year’s same quarter, while sequentially increasing by 6.7 per cent. The net profit stood at ₹36.17 crore compared to ₹14.63 crore, a YoY increase of 147.19 per cent, while sequentially increasing by 25.85 per cent from ₹28.74 crore. 

At TTM, the shares of Morepen Laboratories are trading at a PE of 40.4 times, which is higher than its three-year median PE of 28.9 times and industry PE of 37.6 times. The company has maintained a three-year ROE and ROCE of 12.3 per cent a nd 16.7 per cent, respectively. It has a three-year compounded sales growth of 12 per cent. It has an interest coverage ratio of 36.6 times and has a Piotroski score of 7. Given the aforementioned factors and the positive outlook for the pharmaceutical sector, we recommend BUY.