Pharma & Healthcare Sector: Report Gives 'Buy' Rating On 3 Stocks; Shares Target Prices

New Delhi: The Indian pharmaceutical sector reported a strong growth in the second quarter of the financial year 2024-25, driven by robust growth in North America, Axis Securities said in a report. According to the report the healthcare sector also registered robust momentum in the reporting quarter, according to the report.

Pharma Sector Reports Strong Growth

The sector reported a growth of 10.2 per cent year-on-year (YoY) and 1.7 per cent quarter-on-quarter (QoQ), driven by robust growth of 10.8 per cent YOY in North America.

The sector also saw a growth in its domestic business by 9.8 per cent annually.

The Indian Pharmaceutical Market (IPM) saw an 8 per cent growth YoY for Q2 FY25, the report said, adding, chronic therapies grew by 9 per cent, while acute therapies saw a modest 4 per cent primarily due to a weak season for acute segments.

According to the report, gross margins improved to 65 per cent, reflecting an increase of 149 basis points (bps) YoY but declined QoQ by 30 bps. The launch of niche products, low single digit price erosion, stable raw material prices, along with a higher number of Indian products in the mix have supported this improvement.

Hospital Sector Reports Robust Momentum

The topline revenue of the healthcare sector increased by 17.6 per cent YoY and 10.4 per cent QoQ, driven by improved occupancy rates, which rose by 340 bps YoY and 470 bps QoQ.

The report attributes the rise in occupancy rates to higher purchasing power and increased insurance penetration that provides greater access to healthcare sector.

The healthcare sector also reported and increase of 4.5 per cent in the Average Revenue Per Occupied Bed (ARPOB), though it had declined by 2.8 per cent sequentially, averaging Rs 56,300 across the industry.

The sector also reported a rise in operating margins by 20 bps YoY at 25.7 per cent, and 270 bps QoQ, reflecting a higher operating leverage on a sequential basis.

While Kalinga Institute of Medical Sciences (KIMS) reported  and operating margin of 28.1 per cent, Medanta had a margin of 24.5 per cent and HCG registered an operating margin of 18.5 per cent.

Insurance payers contributed 33 per cent to the total revenue in the healthcare sector during the reporting quarter, with an increase of 12 per cent on a QoQ basis and a rise of 23 per cent annually. However, insurance penetration remains relatively low.

The sector will continue to grow with an annual ARPOB growth of 6 per cent and an improvement of 100 bps in occupancy rates.

Key growth drivers in the sector include a favourable shift in the payer mix, higher surgical volumes and rising insurance penetration.

Among Recommended Stocks

Axis Securities in its report has also recommended buying stocks like Healthcare Global Enterprises Ltd (HCG) (TP: Rs 535), Lupin Ltd (TP: Rs 2,600) and Dr Reddy's Laboratories Ltd (TP: Rs 1,535).