6 August 2020
1QFY21 Results Update | Sector: Healthcare
Strides Pharma
Estimate change
TP change
Rating change
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CMP: INR535
TP: INR650 (+22%)
Buy
Strong revival in earnings led by Other Regulated / Africa
Superior execution leads to recovery in US sales for the quarter
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
STR IN
90
47.9 / 0.6
547 / 271
25/17/30
419
70.3
After posting adjusted loss of INR274m in 4QFY20, Strides Pharma (STR)
made a strong comeback in 1QFY21 with adjusted PAT of INR560m. This was
on account of strong traction witnessed in the US / Other Regulated / Africa
markets.
We increase our EPS estimate for FY21/FY22 by 19.6%/14.2% to factor a
strong ANDA pipeline for the US market, good order-book visibility for the
Other Regulated market, revival in Africa sales, and improved operating
leverage. We roll our price target to INR650 on a 12M forward SOTP basis.
We remain positive on STR on the back of considerable improvement
expected in return ratios over FY20–22 and attractive valuations. Maintain
Buy.
STR’s 1QFY21 revenues were up 14% YoY to INR7.8b (est: INR6.5b).
Other Regulated sales were up 53% YoY to INR2.6b (33% of sales). Emerging
Markets sales rose 17% YoY to INR1.5b (19% of sales).
US sales fell 4% YoY to INR3.7b (48% of sales). Excluding Ranitidine sales in
1QFY20, YoY growth was 8% for the quarter.
The gross margin (GM) expanded 740bp YoY to 61%, led by a better product
mix. However, the EBITDA margin expanded at lower rate of 130bp YoY to
19.3% on higher opex (employee cost +245bp YoY; other expenses +370bp
YoY as % of sales).
EBITDA for the quarter was up 22% YoY to INR1.5b (est: INR1.1b).
STR reported exceptional gains of INR490m related to exchange rate on
foreign currency loans, derivatives, deferred considerations, and intra-group
loans.
Adjusting for the same, PAT was up 59% YoY to INR560m (est: INR290m).
While STR continues to gain market share in existing products, new launches
would enable it to achieve sales of ~USD240m in the US for FY21 (compared
with USD50m for 1QFY21).
STR has guided for 6–8 ANDA launches for FY21.
It has completed remediation measures, verified from third-party
consultants, and awaits clarity from the USFDA regarding an inspection.
The growth prospects in Other Regulated remain promising on the back of
enhanced product offerings as well as reach.
Net debt was INR10.1b at the end of 1QFY21.
Strong beat on earnings led by traction in US / Other Regulated
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
27.5 34.3 39.2
Sales
5.3
7.0
8.2
EBITDA
1.4
3.1
4.0
Adj. PAT
EBIT Margin (%)
13.1 14.4 15.1
15.3 34.6 45.0
Cons. Adj. EPS (INR)
73.3 125.0 30.3
EPS Gr. (%)
282.6 312.6 346.7
BV/Sh. (INR)
Ratios
Net D:E
0.3
0.2
0.1
5.3 11.6 13.7
RoE (%)
6.9 10.4 11.9
RoCE (%)
Payout (%)
82.4 24.2 24.2
Valuations
35.0 15.5 11.9
P/E (x)
12.6
9.6
8.0
EV/EBITDA (x)
Div. Yield (%)
0.7
1.5
1.7
FCF Yield (%)
1.2
5.6
8.5
2.4
2.0
1.7
EV/Sales (x)
Highlights from management commentary
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20
29.7
31.3
19.4
18.9
26.8
28.8
24.1
21.1
Jun-19
31.2
24.3
25.3
19.3
FII Includes depository receipts
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Tushar Manudhane - Research Analyst
(Tushar.Manudhane@MotilalOswal.com)
Research Analyst: Hitakshi Chandrani
(Hitakshi.Chandrani@motilaloswal.com);
Bharat Hegde
(Bharat.Hegde@motilaloswal.com)