Bandhan MF’s new Healthcare sector fund will invest in a structural growth opportunity that has consistently grown faster than the underlying economy and promises to continue this trend into the future.
Viraj stresses that this thematic fund should not be looked at as a tactical opportunity as it is not a cyclical but a structural growth story.
Viraj categorizes the theme into 4 sets – hospitals/diagnostics, CDMO, generic exports and domestic pharmaceuticals – with each having their own tailwinds and growth trajectories.
Generic exports and domestic pharmaceuticals are compounders – steady growth businesses which therefore merit space in the portfolio.
CDMO is the high risk – high return part of the portfolio. One has to be careful in stock selection and identify companies that are working on promising molecules with international majors.
Hospitals are the high growth segment of this theme but are more capital intensive and therefore cannot generate the kind of RoEs that domestic pharma can.
The portfolio will always have between 20-30% in each of the 4 segments. Allocations within these ranges will be dynamically managed in tune with evolving opportunities in each segment.
The portfolio will thus be a good blend with defensiveness of generic exports, high RoE compounders from domestic pharma, high growth from hospitals and the higher risk – higher return flavour from CDMO.
Even as the world turns more protectionist, Viraj is confident that generic exports will not face any material tariff pressures as India is the largest supplier of low cost – low margin affordable medicines to the US with over 40% market share. Increasing the cost of affordable medicines is unlikely to be a major political objective.
CDMO on the other hand could face some headwinds in the event of continued tariff pressures as these are high margin drugs which can, if required, be manufactured in the US and still have reasonable margins.