Jefferies’ pharma bets are Divi’s Laboratories and 3 smallcaps, with up to 30% upside. Here’s why

India’s CRDMO sector is set to take advantage of the tailwinds that can drive its growth for the next 3-5 years, global brokerage Jefferies said in a note as it picked four stocks from the sector for gains up to 30%. The recommendations come following 50 investor meetings where the US brokerage noted key drivers amid concerns on valuation and volatile earnings profile of the companies.

Stocks to buy

1) Divi’s Labs: This largecap stock remains a top bet in the sector given its track record, and being a well-owned stock across domestic investors. The target is set at Rs 7,150, reflecting a 19% upside. While investors agreed on Divi’s mid-to-long term growth visibility, concerns remain if all the growth is already priced in and consolidated estimates are too high to be met.

2) Cohance Lifesciences: This smallcap stock is recommended for a target of Rs 1,150, indicating 17% upside. Despite a 17% 1-year fall, there is significant interest in the name, said Jefferies. Investors are betting on a strong pipeline and healthy growth visibility for ADC payload manufacturing and are keen to know when organic growth rebounds. It is a multibagger with returns of 105% over a 3-year period.

3) Sai Life Sciences: The brokerage recommends a buy for this stock for a target of Rs 1,100 which is a 27% upside. A good set of results has brought confidence in the name. Project visibility that can drive growth has improved significantly in the last couple of quarters, Jefferies said in a note. But easy returns and most of the re-rating is behind, it said.

4) Piramal Pharma: This is another smallcap bet with 30% upside. The target has been set at Rs 260. The stock has fallen 15% over the 1-year period. Jefferies sees significant investor interest due to valuation discount versus peers.

Also Read: LIC shares fall 15% in a year, over 70% of portfolio stocks fall up to 70%

Red flag

Laurus Labs: A midcap multibagger stock with 5-year returns of 256%. While investors agreed on a robust CRDMO and near-term outlook, lack of guidance creates uncertainty. Investors are wary of the increasing risks to its ARV business as new therapy is planned for LMIC ARV segment, Jefferies note said, highlighting that several investors voiced concerns on high valuation. It has an ‘Underperform’ rating on the counter.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)