API makers surge up to 110% in 50 days as virus hits Chinese exports

Shares of some of the API-focused pharma companies are making merry on Dalal Street, as the coronavirus epidemic has hit supplies of some critical active salts from China to drugmakers across the world.

Shares of some of the pharma firms have jumped up to 110 per cent, as market participants see them as possible candidates to fill the void.

Lasa Supergenerics, which deals in human and veterinary APIs (active pharmaceutical ingredients), has jumped 108 per cent year to date. Lasa specialises in catalyst chemistry and manufactures anthelmintic/veterinary API products.

Similarly, shares of Shilpa Medicare, Gujarat Themis, Solara Active Pharma, Granules India, Wanbury and Wockhardt have gained over 40 per cent in last 50 days.

India API imports from China averaged almost 70 per cent of consumption by value and importers are at risk of supply disruptions and unexpected price movements, the Confederation of Indian Industry (CII) said in a note.

That spells an opportunity for Indian API manufacturers and investors have lapped up the shares of potential beneficiaries.

“Incidence like this is expected to spearhead steps for increasing API manufacturing within India by way of quick regulatory approvals. India has enough capacity to manufacture APIs for many medicines. Currently, many such facilities remain under-utilised,” said Geojit Financials.

The brokerage sees the coronavirus crisis as a positive for companies like Granules India and Natco and negative for Sun Pharma, Lupin, Dr Reddy’s and Aurobindo Pharma, which are in the business of finished products.


In a post-earnings report, Mumbai brokerage BP Equities said it expects Granules India to deliver 36.7 per cent or 541 bps improvement in Ebitda margins CAGR over FY19-22.

“The improvement in Ebitda margins will be led by operational efficiency, a move up the value chain towards high-margin business and improved capacity utilisation,” it said.

The brokerage has a ‘buy’ rating on Granules India, with a price target of Rs 190. Centrum is also bullish on the stock and has a price target of Rs 205.

Analysts see a slightly delayed impact of the supply crunch from China, as drug firms have inventories till next month. “The companies we have talked said they have inventories till March. People were expecting the situation in China to normalise by mid-February, but that has not happened. Hence, they are currently in a wait-and-watch mode,” said Runjhun Jain, Senior Research Analyst at Nirmal Bang.

“If the situation improves by next week, it is still okay. If not, then we can see some price impact from next month. If the situation doesn’t get resolved by March, we can see some major supply issues,” she said.

Prices of paracetamol, the most commonly used analgesic, have jumped 40 per cent in India, as pharma companies are facing challenges in securing supplies of a critical raw material for paracetamol intermediate, which can only be sourced from central China. Any stock out may further worsen the situation of paracetamol in India, CII warned.

Similarly, the cost of azithromycin, an antibiotic used for treating a variety of bacterial infections, has risen 70 per cent.