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Multipie weekly #30 Tailwind in NLEM exposed pharmaceutical companies

Happy New Year everyone! πŸ˜„βœ¨In the first edition of our newsletter in 2022, we covered the Market snapshot, Tailwinds in NLEM exposed pharmaceutical companies, learnings from Ramesh Damani followed by interesting visuals & curated reads.

1. Market snapshot

In the last week of 2021, the Pharma & healthcare sector gained by 5.3% after the government’s approval on Molnupiravir – a medicine to treat covid. This led to the share price increase of all the major pharmaceutical companies having Molnupiravir in their portfolio. To know more in detail, click here.

Consumer discretionary, Telecom & Materials/Commodities were also top gainers and were up by 3.5%, 2.8% & 2.8% respectively. See year-end sector-wise details in table below:

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2. Tailwind in NLEM exposed pharmaceutical companies

Pharma (which has a subdued 2021) was the best performing sector last week. The big boys Sun Pharma, Divi’s Labs, Dr Reddy’s, Cadila, Lupin, Torrent Pharma, IPCA, Laurus, Lupin, Syngene all gained between 5-8% over the week.

So, let’s talk of one key tailwind in NLEM exposed pharmaceutical companies in 2022:

Every year, the World Health Organization (WHO) releases a list called- National List of Essential Medicines (NLEM), which includes the names of basic necessary drugs- generally for acute diseases like headache, cough-cold, etc.

To regulate the prices of these essential medicines (price ceiling), the government passed a Drug price control order (DPCO) act in 1995. Usually, DPCO allows the price increases in this category just to the extent of an increase in WPI inflation i.e. yearly ~2-3% price hike. 

21 listed pharmaceutical companies are exposed to NLEM, which constitutes ~20% of the Indian Pharmaceutical market and in the past, there was very little scope of higher price realizations. But, for the very first time, these companies will be seeing the highest price hikes of ~10% due to higher WPI compared to Non-NLEM drug companies. 

Check out the names of the pharmaceutical companies in the table here (recommended follow for Pharma enthusiasts).

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3. Learnings in 2021 from Ramesh Damani

This week’s video highlight is Ramesh Damani’s interview with Niraj Shah of Bloomberg Quint. Sharing some highlights and his key learnings from 2021: 

  • IT outperformance to continue: Large & midcap IT strong companies have done very well and definitely are trading at a premium, but it can still get crazier! New-age tech businesses- might be the future of Indian consumers but it doesn’t have enough margin of safety for investors.

India might be in a long-term bull market..and we are just in the early years! Why? 

  • The world relies on India for Tech/ IT need: For context- India’s software exports are higher than Saudi Arabia’s oil exports.
  • Capex cycle is ready to play out: Project clearances have been fast-tracked across railways, highways, metro projects, etc. As for private sector capex, many key companies in steel & cement are at ~70-80% utilization levels – expects new greenfield projects from there as well. 
  • The bull market in US equity markets since the last 13 years might be coming to an end – the breadth of the rally is narrowing down, FED is tightening after easing for many years.
  • India has been quite resilient even when FIIs continuously sold in 2021. The aging of US markets can be very good for Indian markets.

How to create long-term wealth?

β€œCompounding” money at a decent 20% might not sound attractive to many but the results are extraordinary over 10-20-30 years!

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4. Visuals of the week:

4.1 Shift from fossil fuels to cleaner energy for transportation

CRISIL is expecting a decline in petrol demand in the upcoming decade. Two mega-trend that is expected to emerge are the use of Ethanol and CNG in the fuel mix and is expected to displace one-third of petrol demand over the decade. Petrol consumption is expected growth in 2% CAGR vs 22% for CNG. Ethanol is expected to drive 58% of the consumption shift till FY25.

Interesting to note that CRISIL doesn’t expect EVs to make a significant dent in petrol demand till FY25. Overall this makes me say – advantage Maruti.

4.2 Why PSU Banks matter – more rural-focused

Sharing this data insight from the RBI report on β€œTrend and Progress of Banking in India” released earlier this week.

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5. Curated good reads & company updates:

5.1 2022, shooting for the moon by DSP Fund managers – great read.

5.2 β€œThe many worlds of enough” – cover a lot of wisdom about money, philosophy of happiness and astrophysics. Extract:

“πΈπ‘›π‘œπ‘’π‘”β„Ž 𝑖𝑠 𝑒𝑙𝑒𝑠𝑖𝑣𝑒 π‘π‘’π‘π‘Žπ‘’π‘ π‘’ π‘€β„Žπ‘’π‘› π‘¦π‘œπ‘’ π‘Ÿπ‘’π‘Žπ‘β„Ž 𝑖𝑑, π‘¦π‘œπ‘’β€™π‘Ÿπ‘’ π‘›π‘œ π‘™π‘œπ‘›π‘”π‘’π‘Ÿ π‘‘β„Žπ‘’ π‘π‘’π‘Ÿπ‘ π‘œπ‘› π‘‘β„Žπ‘Žπ‘‘ π‘œπ‘›π‘π‘’ π‘‘π‘’π‘ π‘–π‘Ÿπ‘’π‘‘ 𝑖𝑑. 𝑂𝑛𝑐𝑒 π‘¦π‘œπ‘’ π‘œπ‘π‘π‘’π‘π‘¦ π‘Žπ‘› π‘’π‘›π‘‘π‘–π‘Ÿπ‘’π‘™π‘¦ 𝑛𝑒𝑀 π‘€π‘œπ‘Ÿπ‘™π‘‘, π‘‘β„Žπ‘Žπ‘‘ π‘π‘Ÿπ‘–π‘œπ‘Ÿ π‘£π‘’π‘Ÿπ‘ π‘–π‘œπ‘› π‘œπ‘“ π‘¦π‘œπ‘’π‘Ÿπ‘ π‘’π‘™π‘“ 𝑖𝑠 π‘™π‘Žπ‘Ÿπ‘”π‘’π‘™π‘¦ π‘–π‘›π‘Žπ‘π‘π‘’π‘ π‘ π‘–π‘π‘™π‘’”.

Company updates:
Nitin spinners Ltd announced a capex of 950crs. The company was running at ~90% utilization levels and this expansion will increase capacity by ~40%. 

5.4  Bajaj Auto decided to spend Rs 300 crs to set up a facility for electric vehicles. The first launch will be in Jun’22 and the company targets to produce 5 lakh vehicles per year.

5.5 Board of IDFC first bank is in favour of reverse merger happening between IDFC first bank & IDFC Ltd. – expected to unlock value for IDFC (via Holdco discount) 

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6. Let’s rewind: Last week at Multipie πŸ”„

  • Abhishek shared the list of top-held stocks & mutual funds by the Multipie community. Interesting that the majority of investors on Multipie platform don’t hold many penny or hope turnaround stocks. Cheers to responsible investing. Check out the list here & here.
    PS: We’ll soon have a stock-o-meter on the platform capturing aggregated dashboards.
  • Meet Shah has shared a super exhaustive investment resources list (books, subscriptions, newsletters, resources, patterns, fund managers and so much more). Tap here to check.
  • Prasad shares some great pointers on the approach to investing for new investors here
  • PPF vs Mutual fund- where to invest in is often a question asked by the investors. Preeti comes out with a rationale on how the comparison is futile.
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See you next week. Until then, happy investing!

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