The novel coronavirus or COVID-19 pandemic has caused severe supply-side disruptions in various sectors leading to a cut of 10-15 percent in earnings, said Edelweiss Securities in a report.

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However, pharma as a sector has emerged as a strong contender to drive the next leg of rally, as per experts. In anticipation, pharma stocks have seen massive buying in the last 10 days. Not just in India, global pharma companies have also outperformed indices in this period.

Edelweiss has listed 5 top pharma companies as its top tactical buys amid this coronavirus crisis.

1. Ajanta Pharma – A turnaround story

India business of the firm saw 23 percent CAGR from FY12 to FY16. However, the CAGR was just 6 percent in the last 3 years due to regulatory changes in the dermatology business, but the 11 percent CAGR in 9MFY20 suggests an improvement in the Indian business.

Meanwhile, Ajanta Pharma’s Africa business has reported 19 percent growth in 9MFY20. The brokerage expects growth to sustain at 10-15 percent over the next 2 years.

2. Abbott India – A CAGR story

Abbott India has seen strong sales growth in the last 10 years compared to an average 11 percent growth by other Indian pharmaceutical players. This has been driven by strong execution and acquisition of Piramal Healthcare’s domestic formulation business in May 2010, the brokerage noted. Abbott is pure play domestic story, it added.

3. Dr Reddy’s Laboratories – New management, new story

As per the brokerage, despite its strong innovation capabilities since inception, Dr Reddy’s Laboratories doesn’t even fall in the top 10 domestic formulation players. Its India business was never a focus area for the management, which led to market share loss over a period of time, but for the new management, India will be a key focus area, it added. The company also recently acquired a large portfolio from a competitor.

4. Biocon – Participant of mega theme – biosimilar

The total global biosimilar market size was pegged at $20 billion in 2019 by various studies. The same is expected to touch $60 billion by 2025, the highest growth category for pharma companies globally, the brokerage noted.

Biocon has proven its mettle by launching Pegfilgrastim ($4 billion) in the US last year. Last month, it received approval for Lantus ($6 billion). It further said that biosimilar is sticky business unlike generics, but historical data from Inflectra/Remsima (Remicade), Benepali (Enbrel), which has been launched in the last 4 years, has seen stable to increasing market share with manageable pricing risks.

5. Laurus Labs – A classic investment story

The company has spent Rs 900 crore over the last 3 years to build capacity, which has led to negative free cash flow. The brokerage expects the company to start generating free cash flow from FY21. The business will shift from API to formulation – Formulation will account for 30 percent of overall sales in FY20E compare to just 3 percent in FY19, it said, adding that this will boost return ratios and provide long-term visibility compare to API (active pharmaceutical ingredients), which are opportunistic/cyclical in nature. It expects growth at a reasonable price-earnings will shoot up to Rs 34 per share in FY21E from Rs 9 per share in FY19.