Strides' Q4FY19 results (Outperformer) - Strong quarter; $53m US sales
Q4FY19 result highlights
- Consol Revs came at Rs8.4bn vs est Rs8.7bn; Q3 was Rs7.95bn. US was the clear positive surprise with $53m revs vs est $45m; q3 was $41m
- Other developed markets at Rs1.37bn (14% yoy) was also marginally ahead of estimates. Mgt indicated ~Rs300m business was impacted to implementation of serialization measures.
- Australia as well Insti / EMs business were below estimates. Mgt guided that the Insti / EM business have been right sized and will improve significantly in profitability from FY21 onwards despite flat revenues
- EBITDA ahead of estimates at Rs1.59bn vs est of Rs1.4bn; Q3 was Rs1.27bn. EBITDAM – 18.9% vs est 15.8%; Q3 was 16%. GMs 53.5% vs est 51.6%; Q3 was 51.8%. Overheads flat qoq – aided operating leverage
- PBT came at Rs670m vs est Rs462m. Higher other income and lower depreciation neutralised higher interest cost. PAT came at Rs348m vs est Rs323m due to higher associate losses. Associate/ JV losses of Rs211m vs est Rs78m – likely due to higher losses in Stelis
- Guides to ~$240m US sales for FY20 despite recent OAI classification in Puducherry. Remain positive of a quick reclassification of the facility. CGT product to require additional clinical studies which may take another 12m to complete.
- Net debt Rs21bn – qoq inc of ~Rs3bn; Primarily led by higher WC
- Australia divestment on track; awaiting regulatory approvals. Expect closure in next couple of quarters.
Key positives: Higher US and other regulated business; Higher GMs
Key negatives: Lower institutional and EM sales
Impact on financials: Maintain earnings estimates
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 $53m in Q4FY19. With US sales growing sharply and crossing the profitability inflection point and other regulated markets also reaching a critical mass, the operating performance is set to improve further in coming quarters. Australia business exit is positive as it will meaningfully de-leverages the balance sheet – a key investor concern. 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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