Stocks of pharma companies linked to vaccines rally

Vaccines: Pharma companies involved in the production of Covid vaccines have witnessed a sharp spurt in their stocks. The gains came particularly after the announcement of the country’s phase-3 vaccination program.

Moreover, existence allowed to supply to private channels could potentially provide a “significant upside” to companies. Including Zydus Cadila, Dr. Reddy’s, Aurobindo, Strides, Pfizer, and Shilpa Medicare in the near term, analysts say.

On the other side, the Centre recently announced the expansion of the vaccination drive to cover those aged 18-45 years. While it also allowed vaccines for the private market. Where domestic players will have to supply 50 percent of the quantity to the central government.

The balance to state governments or private hospitals. With this, there would be a need for an additional 1.2 billion doses from May, as around 600 million of the population have now become eligible. Supplies to the private market would help in raising realizations. But we expect competition to be high from domestic and imported vaccines.

However, we refrain from assigning a multiple to this opportunity as the earnings sustainability, remains uncertain, and there would be a likely increase in competition, an analyst from ICICI Securities said. Analysts expect certain imported vaccines from US-based companies Pfizer, Moderna, and J$J to enter the private market.

Moreover, supplies to the government may continue at around $2 per dose, while prices in the private market will vary, and could be upwards of Rs. 600 per dose, they added. While Serum Institute and Bharat Biotech recently announced prices of Covishield at Rs. 600 per dose and Covaxin at Rs. 1,200 per jab, respectively, for the private market.

Dr. Reddy’s Labs;

Dr. Reddy’s Labs recently received the emergency use authorization for Russia’s Sputnik V vaccine. Which will be imported and is likely to be launched by May-end. Zydus Cadila, too, expects approval for its vaccine ZyCov-D by June on successful completion of phase-3 trials.

While for Zydus Cadila, assuming approval and average realization is Rs. 600 with a 25 percent Ebitda margin, the upside could be around 31 percent in FY23. While at peak capacity utilization, Aurobindo can get around 17 percent Ebitda upside to the FY23 estimate, assuming an average realization of $2 per dose and 15 percent Ebitda margin.

Aurobindo has developed a vaccine facility a contract manufacturing organization, with 480 million doses expected by June. Moreover, India’s adult population of one billion will account for the largest market for US vaccines. We see 20-25 percent of US vaccine exports heading to India, a note from Yes Securities said.