Strides Pharma Science's Q2FY20 results (Outperformer) - Strong quarter ledby regulated markets
Q2FY20 result highlights
- Consol Revs came at Rs7.2bn vs est of Rs7bn; Q1 was Rs6.9bn. US revs grew at a CC growth of 1% qoq to $57m vs est of $55m despite temporary supply disruption of Ranitidine.
- Other regulated markets stood at Rs2.2bn vs est of Rs1.8bn, led by strong performance in EU and scale up of supplies to Australia. Emerging markets business stood at Rs980m bn vs est of Rs1.3bn due to a decline in institutional business
- EBITDA and GPs higher than est - EBITDA came at Rs1.5bn vs est of Rs1.3bn; EBITDAM 20.7% vs est of 18.6%. Notably, Rs1.2bn EBITDA is higher than the Q3FY19 EBITDA (inclusive of the Australian business) - indicative of the significant scale-up in the ex-Australia business profitability in last couple of quarters.
- GMs were 58.2% vs est 54.5% (Q1:53.9%); GPs of Rs4.2bn vs est of Rs3.8bn. Other expenses came higher at Rs2.7bn vs Rs2.5bn in Q1.
- Post Rs212m associate loss on Stelis/CHS business, adjusted PAT came at Rs496mn. Strides also booked of Rs834m exceptional income
- Maintained guidance of $220-240m US sales for FY20 despite WL in Puducherry and disruptions in Ranitidine. Clarity on the US way forward on Ranitidine sales will likely emerge over next 2 weeks and mgt remains hopeful of a having a positive outcome.
- Net debt Rs10bn – increased by Rs3bn due to increased stake in Stelis, acquisition of Fairmed and increased working capital requirements with growth of US front end.
Impact on financials: Decrease FY20 est by 12% on account of higher losses from associate companies
Valuations & view
Post a tough FY18, Strides has effected a fairly remarkable recovery in FY19 with the US sales growing from $21m in Q4FY18 to $57m in Q2FY20. Temporary disruptions in Ranitidine are more than effectively offset by strong growth in overall US sales and mgt focus on profitability over volumes. The operating performance is set to improve further in coming quarters with the crossing of the profitability inflection point and other regulated markets also reaching a critical mass. Australia business exit is positive as it has meaningfully de-leveraged the balance sheet – a key investor concern. Overall, this should drive 27% CAGR growth in EBITDA over FY19-21E. Over the medium term, Strides’ proposed re-entry in injectables business could be an interesting value driver. Maintain Outperformer with a target price of Rs569 (8x FY21E EBITDA).
Strides Pharma Science Ltd, formerly Strides Shasun Limited, is a vertically integrated global pharmaceutical company. The Company is engaged in the development and manufacturing of active pharmaceutical ingredients (APIs) and formulations, as well as biotech. Its business segments include Pharmaceutical and Biotech businesses. Its geographical segments are Africa, Australasia, North America and Europe, South and Central America, India and Others. The Company focuses on developing complex pharmaceutical products across therapeutic segments. The Company's products include general tablets, hard gelatin capsules, soft gelatin capsules, sachets, dry powders, dry syrups, potent drugs, semi solids, ointments and creams. It is also involved in supplying generics to hospitals approved by the National Health Service (NHS) and over-the-counter (OTC) products through retail outlets. It operates approximately 10 facilities, which are diversified across Asia, Africa and Europe.
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