MOSL: STRIDES SHASUN (Buy)-Weak results-new launches to drive operating performance
Strides Shasun: Weak results; new launches to drive operating performance
(STR IN, Mkt Cap USD1.0b, CMP INR739, TP INR989, 34% Upside, Buy)
- Strides Shasun's (STR) 3QFY18 sales (including commodity API business) grew 8% YoY to INR9.5b, lower than our estimate of INR10.8b. EBITDA (including commodity API business) declined 30% YoY and margin was 15%, lower than our estimate of 18%. Adjusted PAT of INR466m too was much lower than our estimate of INR979m.
- Strong growth in regulated market sales offset by weakness in emerging market business: Regulated market sales at INR5.8b were up 30% YoY on the back of new launches in US and Australia. The addition of portfolio acquired from Amneal, which was absent in 3QFY17, also aided growth. However, strong growth in regulated market was offset by sharp 38% YoY decline in emerging market business to INR1.7b. Commodity API business was INR2b. Including commodity APIs, which would be demerged soon, overall sales were up 8% YoY.
- Higher other expenses drag EBITDA margin: For like-to-like comparison (excluding commodity API business and domestic branded formulations) gross margin was stable at 53%. However, EBITDA margin was down 300bp YoY to 16.4%. This is on account of higher other expenses. This coupled with higher interest and depreciation led PAT to fall by 24% YoY to INR466m. Very low tax outgo led to lower YoY fall in adjusted PAT for the quarter.
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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