Q2FY19 result highlights
Key positives: Higher US and EM business; improved GMs
Key negatives: Higher SG&A cost
Impact on financials: We have changed our FY19/FY20 EBITDA estimate by -6%/+2% respectively. FY19 / FY20 EPS est are reduced by 49%/16% to account for higher interest costs and minority interest.
Valuations & view
Strides had a tough FY18 (with Q4FY18 being particularly weak) given the unexpected growth issues in US as well as losses in CHC business. As Strides has begun to successfully implement its recalibrated strategy, the business should begin to regain momentum from H2FY19 onwards led by pick-up in the US business. With > 5 new launches in H2FY19 and TAD date for 18 ANDAs over next 12m, US business is at an inflexion point. Given the high depreciation / interest charges, EBITDA growth pickup (on a low base of ~$60m in FY18) can drive accelerated earnings growth from H2FY19 onwards. We remain positive given Strides’ strong position in Australia and growth potential of its US business. Maintain Outperformer with TP of Rs609 (11xEV/EBITDA (FY20E)
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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