Bernstein initiates coverage on 6 pharma stocks, cites 3 major tailwinds for healthcare sector

Bernstein initiated coverage on six pharma stocks, naming Zydus Lifesciences as its top pick, as the international brokerage holds a positive view on the Indian healthcare sector due to multiple tailwinds.

In its latest note, Bernstein gave an 'Outperform' rating to the shares of Zydus Lifesciences, Lupin and Sun Pharma. It rated Aurobindo Pharma as 'Market Perform', while the shares of Biocon and Mankind Pharma got the international brokerage's non-consensus 'Underperform' call.

AI boom impact on healthcare
Bernstein said that the healthcare sector will ride three major waves in the coming years. The first would be the artificial intelligence-led humanity theme 'live longer, look fitter, invest in healthcare' that is driving the innovation play.

“Access will be key to this theme as global workforce upgrades to next generation medicines, obesity control, mental wellbeing, nutraceuticals and preventive medicine (vaccines, wearable), personal hygiene, and digital healthcare,” the brokerage explained.

It added that increasing penetration of health infrastructure in emerging economies, massive rise in disposable income from Al leverage, and lifestyle change towards spending for image consciousness will drive this adoption. "Globally, we estimate these new modalities will incrementally add 100 million patients each year, forming about $400 billion opportunity pie from incremental innovations," it said.

Incremental innovation in pharma space

Secondly, Bernstein believes that incremental innovation in six niches including metabolic peptides, NDAs and more, builds “Rainmakers” for Indian biopharma. It expects these rainmakers to add $70-75 billion to the industry size, helping the industry grow by 4 times to $195 billion over the next decade, with Zydus Lifesciences, Lupin and Sun Pharma emerging as the key beneficiaries.

Finally, quality culture and agentic Al gains are the strongest catalysts of innovation ecosystem build out, according to Bernstein. “Indian Biopharma quality is on a transformation path and will anchor exports of these innovation medicines. Our proprietary model suggests that over the next decade Indian biopharma will have the largest network of future-ready plants globally. Indian Biopharma's Gen Al adoption pivots to innovation efficiency, and we estimate over the next decade about three to four P.P. addition to profit margins from enterprise wide implementation of Al use cases,” it added.

Attractive valuations in healthcare
Bernstein highlighted that valuations in the healthcare sector are attractive, while policy uncertainties are winding down. “Indian Biopharma (Pharma Nifty) multiples have accelerated to reach slightly above their ten-year average of 30.5x,” the international brokerage said, adding, “We believe the market is pricing in domestic market growth and price headwinds in vanilla generics in US market, but not the rainmakers and emerging markets growth.”

The Nifty Pharma index declined nearly 1% to 24,677 on Friday afternoon. Zydus Lifesciences, Bernstein's top healthcare pick, saw its share price rise around 3% in one week and 12% in one month. In the longer term, the shares of the company have delivered 106% returns over three years and 70% returns over five years.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)