What's In Store For Healthcare Sector? | NDTV Profit - video Dailymotion

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Where are healthcare companies headed? What's in store for the sector?  DAM Capital's Nitin Agarwal shares views.

Transcript

00:00 [MUSIC PLAYING]

00:03 Hello.

00:11 Welcome to Talking Point.

00:12 I'm your host, Neelad Shah.

00:13 The Talking Point today focuses on health care, predominantly.

00:17 We'll talk to the management of Loris Labs

00:19 in the second segment.

00:20 The first segment, we're getting somebody

00:22 who tracks this very closely, amongst other things

00:24 that DAM Capital.

00:25 But Nitin tracks health care very closely as well.

00:27 And we get him in on the show to try and understand

00:29 how he thinks about what's happening in this pocket

00:32 currently.

00:32 Nitin, great having you.

00:33 Thanks for taking the time out.

00:34 This is Neeraj here.

00:35 Good morning.

00:36 Good morning, Neeraj.

00:38 Nitin, what's your sense?

00:39 I mean, we've had select companies come out thus far.

00:42 The larger bunch is yet to come.

00:45 Are we looking at a bit of a transition period

00:47 for health care companies?

00:49 Because some sects of health care and pharma

00:53 have done very well.

00:54 Some have not over the last 12 months.

00:57 So I think we're going through a little bit of a golden phase

01:01 for the sector from an earnings perspective,

01:03 largely because domestic continues to be OK.

01:05 And exports have come back very strongly,

01:08 partly because the earning erosion, pricing erosion,

01:11 which was hurting the businesses in the US, has stabilized.

01:16 And more importantly, there are a lot of big ticket

01:18 opportunities like Revolibid, which

01:21 are beginning to crystallize for a bunch of companies,

01:24 especially for most of the large cap companies

01:26 over the last few quarters.

01:28 And I think this will continue.

01:29 The Revolibid tailwinds will continue at least

01:31 for the next four to five quarters.

01:33 So at least for the next four to five quarters,

01:35 the sector is in a very healthy shape

01:36 from a reported earnings perspective, especially the ones

01:40 which have got the US tailwind.

01:42 Got it.

01:43 Sorry, just on that, before we move on

01:45 to the other aspects, Nitin, typically

01:47 because the markets tend to discount three, six months,

01:49 nine months in advance, you still

01:51 think that time is some time away.

01:52 I heard you say four or five quarters of tailwinds

01:54 still exist.

01:55 Yes, I mean, specifically on Revolibid,

01:58 because this is an unusual opportunity.

01:59 I mean, we haven't seen an opportunity of this size

02:02 coming simultaneously for so many players at the same time.

02:05 And my sense is by Q2, F26, it will be behind us.

02:10 I mean, it probably won't be there, meaningful beyond that.

02:14 So I guess another six quarters are left for the reported

02:17 earnings to look good.

02:18 At some stage during the year, a market

02:20 will start to get worried about the poor,

02:23 see Revolibid light for a lot of the companies

02:25 where the Revolibid tailwinds are there.

02:28 OK, so that's the US exporters, a clutch of these companies,

02:31 Dr. Reddy's and the likes have this Revolibid benefits coming

02:35 in, and that's to be kept in mind.

02:37 Nitin, from amongst the pharma companies,

02:39 US FD action was very hot in the last 12 months.

02:43 We've seen a number of companies get observations as well.

02:45 Maybe one or two like Lupin have largely remained unscathed.

02:49 Just trying to understand, what's

02:51 the pecking order at DAM Capital when

02:53 it comes to at least the US generic exporting companies?

02:58 So from a pure generic exporters,

03:00 and I keep the specialty companies like Sun Pharma out

03:03 of it, the strongest businesses on generic exports

03:06 are--

03:07 I mean, we like Aurobindo.

03:08 Aurobindo is a top pick in the generic export businesses,

03:10 the most strongest generic franchise.

03:12 And then we also like companies like Lupin and Zyrus,

03:16 which have got finally--

03:18 which have got a lot of things falling in place for them

03:21 in terms of very decent approvals,

03:23 good quality approvals coming through.

03:24 And as you mentioned, and a reasonably clean track

03:27 record on the regulatory side over the last few quarters,

03:30 which gives them significant clarity

03:31 on the new product launches also on a going forward basis.

03:34 So the pecking order would be Aurobindo or Lupin Zyrus

03:37 as the relatively preferred names among the large caps.

03:41 Got it.

03:41 OK.

03:42 Nitin, before I go, I'll come to CDMO at the end

03:45 because we've got the management of Loras Labs post that.

03:48 But before I come on CDMO, the other aspects of health care.

03:54 We've seen hospital companies having--

04:01 how do I say?

04:02 For lack of a better word, caught

04:04 between a rock and a hard place in certain times

04:07 in terms of regulatory moves.

04:09 But the earnings and the stock price performance

04:12 hasn't been too bad.

04:14 What's your sense about how to play this theme?

04:19 So you're right.

04:19 On hospital, I think structurally,

04:21 from earnings perspective, the business

04:23 is in a very, very good shape.

04:24 The uncertainty which has come in

04:25 is because of the potential regulatory activity which

04:28 can happen in this space.

04:30 At this point of time, we don't have any clarity

04:32 on what can happen and in which shape and form it can happen.

04:35 I mean, if I keep that out, because we

04:37 don't know what could be the contours of any regulatory

04:40 action, assuming it comes through.

04:42 I think businesses are--

04:43 earnings perspective, they are fine.

04:45 I think our view is that health care in India

04:48 is a structural story because the demand supply gap

04:51 essentially is in favor of the suppliers.

04:53 The country is aging.

04:54 The country is becoming richer.

04:56 And only as many hospital beds are there,

04:58 quality hospital beds are out there.

05:00 So structurally, it's a brilliant story.

05:02 Earnings will keep coming through the sector,

05:04 barring anything which happens on the regulatory side.

05:08 So if we just keep that aside--

05:09 and the other part which you mentioned

05:11 has already happened is earnings have-- multiples

05:14 have got re-rated meaningfully for the hospital

05:16 business over the last 12 to 18 months, especially post-COVID.

05:19 So there are relatively limited upside

05:21 possible on the multiple re-rating.

05:24 But I guess we are looking at compounding stories

05:26 from here on, unless and until something really dramatic

05:28 happens on the regulatory front.

05:29 I mean, that's the way we look at it.

05:31 No more running upgrades, no more

05:33 be re-rating, but consistent earnings stories from here on.

05:36 Got it.

05:38 Nitin, then I come to CDMO.

05:40 And we've seen a couple of companies come out with numbers.

05:43 They are not just pure CDMO companies,

05:46 Singene and Loras.

05:47 But there is this whole promise that a lot of people

05:50 are baking it around that CDMO opportunity

05:52 because it may move from China to some of the other countries.

05:55 India is well-placed, et cetera.

05:58 What are your thoughts on that longer-term aspect, of course?

06:00 And then couple that up with how did you

06:03 view the earnings and the commentary of both Loras

06:07 and Singene, if you cover them?

06:10 So I'm personally pretty positive on the CDMO space.

06:15 And I guess this tailwind, which is coming from the Biosecure

06:18 Act implementation, is going to help the sector.

06:21 But in general, I guess companies

06:24 have been working in CDMO, or select companies

06:26 have been working in CDMO for quite some time.

06:28 I think we're getting to a point where--

06:30 and we've seen news flow across companies.

06:31 It started with--

06:33 DVs was the flag bearer for the CDMO story in India.

06:36 And we've seen other companies coming through and having

06:39 meaningful accretion to the CDMO businesses, franchises

06:42 coming through.

06:43 And we're probably seeing--

06:44 my sense is we're probably seeing more and more of it

06:46 as we go along.

06:48 More companies are getting commercial contracts

06:50 from innovators, both on small molecule

06:53 as well as the biologics.

06:55 And I guess the Chinese--

06:57 and any sort of disruption to China,

06:59 so Chinese partnerships, because of the Biosecure Act,

07:02 will be for the tailwind.

07:04 So the point here is in pharma, incrementally, companies

07:08 need to-- incremental value, barring domestic and generic

07:11 exports, will get created from participating

07:14 in the innovation value chain.

07:16 Either companies do innovation on their own,

07:20 like somebody like Sun Pharma, or some people

07:23 doing innovation, their own NC proprietary research.

07:26 Or the other way out is you partner

07:27 with innovators who are doing the proprietary R&D.

07:31 And I guess we see a lot of opportunities

07:35 incrementally building up in this space as we go along.

07:39 OK.

07:39 Do you have coverage on the ones that have come out

07:42 with the results thus far?

07:43 That is, Syngene, again, not necessarily just CDMO,

07:46 but came out with numbers and the guidance.

07:48 Loras yesterday came out with numbers and guidance.

07:50 Do you have individual coverage on any of these?

07:52 So we cover Loras and Syngene.

07:54 We sort of track it as part of Biocon.

07:57 And these are very different business models.

07:59 Syngene is still a CRO-heavy business,

08:01 while Loras is predominantly a CMO.

08:04 I mean, there are some challenges which

08:05 have been there in the last few quarters

08:08 around lack of funding or reduced funding for biotech,

08:11 which has impacted the CRO part of the business

08:14 across the landscape.

08:15 But CMO continues to be in good shape.

08:18 And I guess that's reflected in the way Syngene was reported.

08:22 Even Loras, they were a relatively late starter

08:26 in the business.

08:27 And they have a long way to go from here on.

08:29 And they are, from whatever the guidance management has put

08:32 out, whatever commentary is there,

08:34 it seems a pretty promising road ahead for Loras

08:38 on the CMO front.

08:39 OK.

08:40 And valuations, just last question, Nitin, here.

08:43 Valuations, do they worry you, or do you

08:46 reckon earnings growth could take care of it?

08:48 What's the call out there on both Syngene and Loras

08:51 in particular?

08:53 I mean, my sense is there's a lot of expectation

08:55 around earnings pickup coming through.

08:57 The opportunity space is very large.

08:59 Earnings can really grow meaningfully to the extent

09:02 management can deliver on the promise which

09:05 is there in these businesses.

09:07 So as you said, earnings multiples are high.

09:09 But the expectation is earnings should take care of them

09:11 as we go along over the next two or three years.

09:13 Got it.

09:14 Nitin, this was lovely.

09:15 I look forward to a longer conversation

09:17 at some point of time in the next couple of months,

09:19 maybe post the earnings season is over.

09:21 But thank you for taking the time out and speaking to us

09:23 today on this particular aspect.

09:25 Thank you so much, Ira.

09:26 Pleasure talking to you.

09:27 The pleasure is ours.

09:28 We need to take into a quick break.

09:30 Nitin Agarwal spoke about how earnings growth could take care

09:33 of the steep valuations in Loras.

09:35 We speak to Dr. Satyanarayan Chawla as is the norm

09:37 that we do every quarter.

09:39 On the other side of this break, stay tuned.

09:43 [MUSIC PLAYING]

09:46 [MUSIC PLAYING]

09:49 (upbeat music)

What's In Store For Healthcare Sector? | NDTV Profit

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