Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Indian mutual fund industry has assets of almost INR 7.93 trillion (US$106.3bn) across Multi cap, Large Cap, Large and Mid Cap, Mid Cap, Small Cap and Flexi Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks. Flexi cap funds can invest across market caps.The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.We are just past halfway through the review period for the second half of 2021. Using data to the close on 4 October, at the next recategorization in January 2022, we see 10 stocks moving from the mid cap segment to the large cap segment, 11 stocks moving from the large cap segment to the mid cap segment , 11 stocks are expected to move from the small cap segment to the mid cap segment, with16 stocks moving from the mid cap to the small cap segment. <a href="https://www.smartkarma.com/entities/zomato-media-pvt" target="_blank" data-smartkarma-citation="entities:28820:1" rel="noopener">Zomato (ZOMATO IN)</a> will be a part of the large cap universe, while 4 other newly listed stocks will be a part of the mid cap universe.Historically, stocks moving to a higher market cap category have outperformed stocks that migrate to a lower market cap category over the back half of the review period. In some cases, the outperformance continues past the announcement of the changes as well. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.

The Indian mutual fund industry has assets of almost INR 7.93 trillion (US$106.3bn) across Multi cap, Large Cap, Large and Mid Cap, Mid Cap, Small Cap and Flexi Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks. Flexi cap funds can invest across market caps.The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.We are just past halfway through the review period for the second half of 2021. Using data to the close on 4 October, at the next recategorization in January 2022, we see 10 stocks moving from the mid cap segment to the large cap segment, 11 stocks moving from the large cap segment to the mid cap segment , 11 stocks are expected to move from the small cap segment to the mid cap segment, with16 stocks moving from the mid cap to the small cap segment. Zomato (ZOMATO IN) will be a part of the large cap universe, while 4 other newly listed stocks will be a part of the mid cap universe.Historically, stocks moving to a higher market cap category have outperformed stocks that migrate to a lower market cap category over the back half of the review period. In some cases, the outperformance continues past the announcement of the changes as well. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.

India: Stock Reclassification & Active Portfolio Management (Dec 2021)

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/gland-pharma-ltd" target="_blank" data-smartkarma-citation="entities:29723:1" rel="noopener">Gland Pharma (7172753Z IN)</a> aims to raise around US$900m in what would be one of India’s largest IPOs in 2020. The company was established in 1978 by P.V.N. Raju. KKR invested in the company in 2014 and <a href="https://www.smartkarma.com/entities/shanghai-fosun-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:8045:1" rel="noopener">Shanghai Fosun Pharmaceutical (Group) (2196 HK)</a> bought a 74% stake in the company in 2017. Gland Pharma was one of the fastest growing generic injectables-focused companies by revenue in the United States from 2014 to 2019. GP sells its products primarily via a B2B model in over 60 countries, including US, Europe, Canada, Australia, and India. It also operates a B2C model in India.GP’s revenue has grown at 28.78% CAGR over FY18-20 and was up another 29.4% in 1Q21. At the same time, PAT margins have increased from 19.2% in FY18 to 34.2% in 1Q21. Thus, PAT has grown at 55.15% CAGR and was up another 70.6% in 1Q21. However, the company hasn’t provided a whole lot of details about the revenue breakdown for its products. In addition, not all the pre-IPO shareholders will be locked-up post listing.

Gland Pharma (7172753Z IN) aims to raise around US$900m in what would be one of India’s largest IPOs in 2020. The company was established in 1978 by P.V.N. Raju. KKR invested in the company in 2014 and Shanghai Fosun Pharmaceutical (Group) (2196 HK) bought a 74% stake in the company in 2017. Gland Pharma was one of the fastest growing generic injectables-focused companies by revenue in the United States from 2014 to 2019. GP sells its products primarily via a B2B model in over 60 countries, including US, Europe, Canada, Australia, and India. It also operates a B2C model in India.GP’s revenue has grown at 28.78% CAGR over FY18-20 and was up another 29.4% in 1Q21. At the same time, PAT margins have increased from 19.2% in FY18 to 34.2% in 1Q21. Thus, PAT has grown at 55.15% CAGR and was up another 70.6% in 1Q21. However, the company hasn’t provided a whole lot of details about the revenue breakdown for its products. In addition, not all the pre-IPO shareholders will be locked-up post listing.

Gland Pharma IPO - High on Growth but Low on Details

Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Bottom-Up

New information in the government's investigation into antitrust violations by generic drug companies continues to surface. An unredacted version of the Attorneys General complaint was published recently by a health care trade publication. The unredacted portions of the document paint an incriminating picture of the industry, increasing the pressure to settle. The timetable for the process remains open-ended, and manufacturers will be reluctant to raise prices absent documentable product shortages. Among the Indian companies, <a href="https://www.smartkarma.com/entities/98" target="_blank" data-smartkarma-citation="entities:98:1">Sun Pharmaceutical Indus (SUNP IN)</a>, <a href="https://www.smartkarma.com/entities/16406" target="_blank" data-smartkarma-citation="entities:16406:1">Dr. Reddy'S Laboratories (DRRD IN)</a>, and <a href="https://www.smartkarma.com/entities/19974" target="_blank" data-smartkarma-citation="entities:19974:1">Aurobindo Pharma (ARBP IN)</a> feature prominently in the court filings.

New information in the government's investigation into antitrust violations by generic drug companies continues to surface. An unredacted version of the Attorneys General complaint was published recently by a health care trade publication. The unredacted portions of the document paint an incriminating picture of the industry, increasing the pressure to settle. The timetable for the process remains open-ended, and manufacturers will be reluctant to raise prices absent documentable product shortages. Among the Indian companies, Sun Pharmaceutical Indus (SUNP IN), Dr. Reddy'S Laboratories (DRRD IN), and Aurobindo Pharma (ARBP IN) feature prominently in the court filings. 

India Generic Drugs: "Antitrust Unredacted"

This Insight builds on our previous Insight, <a href="https://www.smartkarma.com/insights/india-generic-drugs-us-antitrust-inquiry-widens" target="_blank" data-smartkarma-citation="insights:26618">India Generic Drugs: US Antitrust Inquiry Widens</a> by discussing estimated potential liabilities and details contained in court filings. Public comments by one of the plaintiffs (47 states) suggest the defendants’ aggregate liability could exceed US$6 billion, the largest previous settlement on record. There is not enough information to apportion potential liability by company, but some companies are better-positioned to bear the cost of a settlement than others. The process could drag on for an undetermined period of time (which helps the defendants). At the same time, the overhang will keep a lid on generic drug prices in the US market. Among Indian generic companies, <a href="https://www.smartkarma.com/entities/16406" target="_blank" data-smartkarma-citation="entities:16406:1">Dr. Reddy'S Laboratories (DRRD IN),</a> <a href="https://www.smartkarma.com/entities/19974" target="_blank" data-smartkarma-citation="entities:19974:1">Aurobindo Pharma (ARBP IN),</a><a href="https://www.smartkarma.com/entities/12914" target="_blank" data-smartkarma-citation="entities:12914:1">Cadila Healthcare (CDH IN),</a> and <a href="https://www.smartkarma.com/entities/10454" target="_blank" data-smartkarma-citation="entities:10454:1">Glenmark Pharmaceuticals (GNP IN)</a> have the highest risk based on their market caps and exposure to the US market.

This Insight builds on our previous Insight, India Generic Drugs: US Antitrust Inquiry Widens by discussing estimated potential liabilities and details contained in court filings. Public comments by one of the plaintiffs (47 states) suggest the defendants’ aggregate liability could exceed US$6 billion, the largest previous settlement on record. There is not enough information to apportion potential liability by company, but some companies are better-positioned to bear the cost of a settlement than others. The process could drag on for an undetermined period of time (which helps the defendants). At the same time, the overhang will keep a lid on generic drug prices in the US market. Among Indian generic companies, Dr. Reddy'S Laboratories (DRRD IN), Aurobindo Pharma (ARBP IN),Cadila Healthcare (CDH IN), and Glenmark Pharmaceuticals (GNP IN) have the highest risk based on their market caps and exposure to the US market.       

India Generic Drugs: Antitrust Suit Could Cost Billions

The US government's antitrust investigation of the generic drug industry has been quiet for more than a year and has resurfaced with a The Washington Post article (below) today reporting that the inquiry has broadened to include hundreds of products from 16+ companies. <a href="https://www.smartkarma.com/entities/19974" target="_blank" data-smartkarma-citation="entities:19974:1">Aurobindo Pharma (ARBP IN)</a> has been at the center of the inquiry while <a href="https://www.smartkarma.com/entities/16406" target="_blank" data-smartkarma-citation="entities:16406:1">Dr. Reddy'S Laboratories (DRRD IN)</a>, <a href="https://www.smartkarma.com/entities/98" target="_blank" data-smartkarma-citation="entities:98:1">Sun Pharmaceutical Indus (SUNP IN)</a>, <a href="https://www.smartkarma.com/entities/870" target="_blank" data-smartkarma-citation="entities:870:1">Mylan Nv (MYL US)</a>, <a href="https://www.smartkarma.com/entities/868" target="_blank" data-smartkarma-citation="entities:868:1">Teva Pharmaceutical Sp Adr (TEVA US)</a> and at least ten other companies (listed and private) have some exposure.The resolution of the investigation (fines, settlements, etc.) itself probably won't have a "life-threatening" impact on most companies, but industry fundamentals will remain challenging as price competition should remain intense.We don't think that a resolution is imminent, so don't fall into the trap of thinking "no news is good news." These investigations are slow and lengthy by nature, so "no news is no news."

The US government's antitrust investigation of the generic drug industry has been quiet for more than a year and has resurfaced with a The Washington Post article (below) today reporting that the inquiry has broadened to include hundreds of products from 16+ companies. Aurobindo Pharma (ARBP IN) has been at the center of the inquiry while Dr. Reddy'S Laboratories (DRRD IN), Sun Pharmaceutical Indus (SUNP IN), Mylan Nv (MYL US), Teva Pharmaceutical Sp Adr (TEVA US) and at least ten other companies (listed and private) have some exposure.The resolution of the investigation (fines, settlements, etc.) itself probably won't have a "life-threatening" impact on most companies, but industry fundamentals will remain challenging as price competition should remain intense.We don't think that a resolution is imminent, so don't fall into the trap of thinking "no news is good news." These investigations are slow and lengthy by nature, so "no news is no news."

India Generic Drugs: US Antitrust Inquiry Widens

India

Aurobindo Pharma is an Indian multinational pharmaceutical manufacturing company that develops, manufactures, and commercializes a wide range of generic pharmaceuticals, active pharmaceutical ingredients (APIs), and specialty formulations. The company's product portfolio covers therapeutic areas including antibiotics, anti-retrovirals, cardiovascular, central nervous system, gastroenterologicals, anti-allergics, oncology, and dermatology. It commenced operations in 1988-1989 with a single unit manufacturing semi-synthetic penicillin in Puducherry. Headquartered in Hyderabad, Telangana, India, the company was founded in 1986.

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Aurobindo Pharma (ARBP IN)

India: Stock Reclassification & Active Portfolio Management (Dec 2021)

Halfway through the review period, we take a look at stocks that could migrate across the large, mid and small cap segments. With over US$100bn of...

Brian Freitas

Gland Pharma IPO - High on Growth but Low on Details

Gland Pharma aims to raise around US$900m in what would be one of India’s largest IPOs in 2020. Fosun Pharmaceutical bought a 74% stake in the...

Sumeet Singh

India Generic Drugs: "Antitrust Unredacted"

New information in the government's investigation into antitrust violations by generic drug companies continues to surface. An unredacted version...

Kemp Dolliver, CFA

India Generic Drugs: Antitrust Suit Could Cost Billions

This Insight builds on our previous Insight, India Generic Drugs: US Antitrust Inquiry Widens by discussing estimated potential liabilities and...

Kemp Dolliver, CFA

India Generic Drugs: US Antitrust Inquiry Widens

The US government's antitrust investigation of the generic drug industry has been quiet for more than a year and has resurfaced with a...

Kemp Dolliver, CFA

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52-week Range

Market Cap (USDm)

P/E

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