Management Speak: Strides Pharma Science (Outperformer) - Aiming high

Presented are key takeaways from the analyst day/plant visit organised by Strides Pharma Science to provide perspectives on its new business vertical, Stelis Biopharma, and medium-term outlook for the consolidated entity. We met Mr Arun Kumar, Founder and CEO Strides, Mr Badree Komandur, Group CFO and Executive Director Strides, and the entire senior management team of Stelis Biopharma.

Strides – aggressive medium-term growth aspirations: Management presented its detailed growth strategy involving niche oral solids (60%+ GMs), scale-up of private label/OTC, restart of steriles business, bio-betters and specialty drugs, which will help potentially generate ~US$800m from the US business over 3-4 years. Strides has also guided $400m revenue opportunity from other regulated markets (ex-US) during this period.

Stelis Biopharma – Vehicle for foray into biologics: Strides envisages a three-pronged growth strategy for Stelis - biosimilars, biologics CDMO and steriles. Stelis has built a strong management team across functions, drawn from experienced professionals from global biotech firms. Core to its strategy, Stelis’ manufacturing infrastructure is largely in place, with the company already having invested ~US$130m in the venture. Balance US$80-100m remains to be invested.

Re-entry into injectables: Strides is re-entering the generic steriles (injectables) business through Stelis, post expiry of its 6-year non-compete agreement with Mylan. The company has managed to almost reinstate its key team built during the original Agila injectable business, which adds significant credibility to its business plan. Strides expects to build a portfolio of 70-80 products comprising both differentiated and base products, given its focus on profitability.

Valuations & view

Post dismal FY18, Strides has effected a dramatic turnaround over last 5-6 quarters and now seems well placed to build on this success. The stock could create significant value over the medium term, provided the company delivers on its 3-4 year guidance, as shared during the meet. While opportunistic business divestments will continue to be an integral part of Strides’ business model, management is focussed on creating a profitable cash-generating business platform versus continuing on a perennial investment mode (as in the past). We are positive on Strides’ value-creating potential from its current valuations of ~US$625m EV (8x FY21E EBITDA). Maintain Outperformer rating with a TP of Rs569.