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MOSL: SHILPA MEDICARE (Buy)-Stake sale to mark end of JV with ICE-CRAMS business with ICE will also be lowered

Shilpa Medicare: Stake sale to mark end of JV with ICE; CRAMS business with ICE will also be lowered

(SLPA IN, Mkt Cap USD0.6b, CMP INR465, TP INR686, 47% Upside, Buy)

 

• Shilpa Medicare (SLPA) recently decided to end its joint venture (JV) with ICE S.P.A Italy (ICE) – a move that would help it garner proceeds of INR1.3b, as against its investment of INR800m toward the JV. Furthermore, the amount of annual business with ICE via CRAMS may be reduced by ~INR500m. The decision was premised on the increasing uncertainty over the profitability of the JV.
• Accordingly, for FY19/FY20, we reduce our (i) sales estimate by 5% to INR10b/INR12b and (ii) earnings estimate by 8.5% to INR2.1b/INR2.7b. Consequently, our price target is lowered to INR686 (25x 12M forward earnings).
• We, however, remain positive on SLPA and re-iterate our Buy rating, given the promising outlook for the US formulations business (31 ANDAs pending for approval) and minimal medium-term regulatory risk.

 Rising uncertainty prompts SLPA to sell stake in JV

• The Raichem Medicare JV (between SLPA and ICE) has been incurring losses over the past two years and the outlook, too, remains uncertain. Consequently, SLPA has decided to sell its stake in Raichem Medicare to ICE for a consideration of USD20.2m (INR1.3b). The total investment toward the JV till date by SLPA was ~INR800m. The stake sale is expected to conclude by 31st October 2018. Furthermore, the amount of annual business with ICE via CRAMS may be reduced by ~INR500m .