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Pharma CRAMs: Structural story getting stronger...

ICICI Securities 25 Feb 2022

What’s buzzing:

Q3FY22 Healthcare results have once again vindicated our positive stance on the CRAMs space as the most preferred structural play theme among pharma sub-segments with growth momentum and visibility. I-direct pharma CRAMS revenues grew 76% YoY and 25% QoQ in Q3FY22 to Rs 2,784 crore.

Context:

CRAMs sub-segment has high entry barriers due to 1) Stringent customer validation norms, 2) Stricter IP adherence requirements, 3) High end quality compliance sought by the developed economy regulators, 4) in-depth technical know-how and 5) higher switching cost. Globally, there are only a handful of players (including Indian companies), which offer a dedicated CRAMs platform.

Perspective:

Indian CRAMS players offer end-to-end services, from pre-clinical trials to manufacturing finished dosages. Aggressive capex drives initiated by most players over the last few years are now coming to the fore with the post-Covid scenario further strengthening the argument in favour of outsourcing with incremental order wins and client additions. The scenario is likely to persist as companies prepare for the next capex cycle over FY22E-24E with following estimates for Divi’s: Rs 2400 crore, Syngene: Rs 1200 crore, Laurus: Rs 2150 crore and Suven Pharma: Rs 600 crore. The sheer magnitude of spend exemplifies the revenue visibility for the next two to three years. Divi’s Labs, Syngene International and Laurus Labs are our preferred picks among others in the CRAMS space. We expect I-direct pharma CRAMS segment revenues to grow at a CAGR of 23% over FY21-24E to Rs 11,947 crore.

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