India's drug maker, namely Cipla, Cadila Healthcare, Bharat Biotech are at the advanced stage of developing vaccines that will help fight novel coronavirus or COVID-19. However, industry experts are worried about their capacity to deliver goods throughout the nooks and corners of the country.
This observation stems from the fact that India lacks an adequate distribution/supply chain with required cold storage capacity.
According to a Credit Suisse report, India needs about 1.7 billion COVID-19 vaccine doses to vaccinate the majority of its adult population. It targets to administer 400-500 million doses by July 2021.
The global brokerage believes that there is sufficient capacity for vaccine manufacturing (more than 2.4 billion doses) and various components like vials, stoppers, syringes, gauze, alcohol swabs, etc. However, the bottleneck is cold storage infrastructure, especially refrigerated vans. By using a part of the capacity of the current immunization program (600 million doses) and the cold chain infrastructure of the private sector (250-300 million doses), potential vaccinations can reach 550-600 million doses annually. Also, the manpower required for administering the vaccine will be less than 100,000.
The key vaccines India is banking on are from Oxford/AstraZeneca, Novavax, and Johnson & Johnson which require a temperature range between 2-8°C and analysts expect the earliest efficacy data by end of November 2020/December 2020 and in the best case, vaccines can be rolled out in January 2021.
Aurobindo's large viral vector vaccine facility of 300 million doses should be ready by March/April 2021. The pricing in export markets could be higher than in India and profitability could be at Rs 20-25 per dose and, therefore, on a 300 million dose capacity, Aurobindo could benefit from a potential EBITDA of Rs 6.0-7.5 billion (or 12-15 percent of FY22E EBITDA).
Credit Suisse upgrades the stock to 'Outperform' from 'Neutral' and increased the target price to Rs 900 per share from Rs 710 earlier.
Cadila also has a facility for 100 million doses but it is for DNA vaccine and, therefore, would not be able to manufacture vaccine from global players in the near term, the brokerage house said.
Vaccine administration plays
Apollo Hospitals has the infrastructure to administer around 100 million doses annually and this can add Rs 2.5 billion EBITDA. Credit Suisse increased the target price of Apollo Hospitals to Rs 2,405 per share from Rs 2,365 earlier.
Meanwhile, diagnostic companies such as Metropolis is likely to benefit from higher anti-body testing as people may want to test for anti-bodies before vaccination to check whether they already have antibodies. This would omit the need for the vaccine. People may test post-vaccination as well to check whether they have built sufficient anti-bodies to ensure enough defense. However, with volumes, the pricing of anti-body tests may reduce sharply, it said.
Further, Credit Suisse is of the view that higher vaccination will impact volumes of COVID-19 treatment drugs. Cipla and Cadila have benefitted the most from the sale of COVID-19 treatment drugs, especially Remdesivir and with the number of cases potentially going down post-vaccination, the sustainability of strong sales in Q2FY21 is questionable.
"We have not built in any upside beyond 4Q FY21 but the market expects a good part of this upside to continue in FY22 too," the brokerage said.