Stocks to buy: Lupin, KIMS, Aurobindo Pharma among pharma stock picks by Axis Securities

Stocks to buy: The Pharma Coverage universe saw robust revenue growth of 11%/4% YoY/QoQ in Q1FY25, according to a recent report by brokerage house Axis Securities on the outlook for the pharmaceutical industry following the Q1FY25 results. This growth was attributed to a number of factors, including a strong domestic market, new product launches (particularly Darunavir, DDR D, gMyrbetriq, and gSpiriva), lower price erosion, increased gross margins through cost optimization, and expansion of the US base business portfolio. EBITDA margin increased in tandem with normalising cost inflation and stabilising pricing by a robust 250bps/120bps YoY/QoQ.

The brokerage claimed that field force expansion, which in turn drove volume growth, was the reason behind India's growth exceeding expectations. Better margins were a result of declining freight costs and softening input costs. Hospitals' average revenue per occupied bed (ARPOB) increased year over year (Year) despite their seasonally decreased occupancies.

Aurobindo Pharma Ltd, Krishna Institute of Medical Sciences Ltd (KIMS), and Lupin are the top picks in the pharma sector according to the brokerage Top Sector Ideas, which are set against the backdrop of the idea that Pharma is Back on Growth Track.

Krishna Institute of Medical Sciences Ltd (KIMS) - Buy: target price: ₹2,500

Consolidated occupancies decreased by 340bps YoY and 160bps QoQ, the brokerage reports, ultimately landing at 49.8% in Q1FY25. Notwithstanding this decline, ARPOB experienced a notable rise of 21.3% YoY and 12.2% QoQ to ₹38,458, propelled by a positive change in the payer mix toward cash and insurance as well as a decrease in Average length of stay (ALOS) to 3.6.

Important therapeutic categories had YoY increases in revenue of 36%, 14%, and 28% in oncology, orthopedics, and gastric care, respectively. ARPOB for mature assets increased to ₹61,245 (up 25% YoY) and ₹19,774 (up 25.6% YoY) in Telangana and Andhra Pradesh, respectively, as a result of improved payer mix and lower ALOS.

“The outlook remains positive, primarily driven by increasing ARPOB and incremental bed supply, which are expected to boost cash flows. Therefore, the company continues to be an attractive long-term investment opportunity,” the brokerage said.

Lupin - Buy: target price: ₹2,200

The positive prognosis is supported by a number of growth drivers, including recent US market launches of Darunavir and gSpiriva, which have achieved MS of up to 30% and 32%, respectively.

The recent approvals of Xyway (MS $958 Mn with 180 days of exclusivity) and Tolvaptan (MS $287 Mn) may have a major impact in the second half. As the company grows to 1,000 MR, double-digit growth in the India business is anticipated. The API industry is seeing a resurgence in demand, which suggests a growth acceleration.

Aurobindo Pharma Ltd - Buy: target price: ₹1,612

Positively, the brokerage believes that the newly operationalised Vizag factory may play a key role in the introduction of new injectable goods. Over the previous two years, the business has invested ₹7,000 Cr in Capex, mainly focusing on markets like Biosimilars and Pen-G (API).

The ROIC from these significant capex investments will have a significant impact on the company's valuation in the upcoming years. Aurobindo Pharma's near-term development will depend on its capacity to manage obstacles in the injectable business while optimising returns from its capital expenditure plans, given these complex considerations.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.