Q3FY19 result highlights
Key positives: Higher US and other regulated business; debt reduction, African business break even
Key negatives: Lower institutional sales and lower GMs
Impact on financials: We have cut our FY19/FY20/FY21 EBITDA estimate by 7% each. FY19 earnings reduced by 36% while FY20/21 upgraded by 17% and 6% due to lower interest costs.
Valuations & view
Post a tough FY18 given unexpected growth issues in the US, Strides has effected a fairly remarkable recovery over the last three quarters. Australia business exit, while unexpected, is positive as it meaningfully de-leverages the balance sheet – a key investor concern. Further, with US sales nearly doubling over this period and crossing the profitability inflection point, the operating performance is set to accelerate in coming quarters with expansion in US / other regulated market sales. This should drive 29% CAGR growth in EBIDTA over FY19-21e, despite Australia biz divestment. Further, Strides has significant option value in form of the potential exclusivity for its $400m CGT product as well as its Stelis portfolio. Maintain Outperformer with a target price of Rs680 (9x 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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