MOSL: SHILPA MEDICARE (INITIATING COVERAGE)-Injecting growth-Product approvals, superior execution to drive earnings

​SHILPA MEDICARE (INITIATING COVERAGE): Injecting growth; Product approvals, superior execution to drive earnings

(SLPA IN, Mkt Cap USD0.8b, INR647, TP INR805, 24% Upside, Buy)

Shilpa Medicare (SLPA) has been engaged in the manufacture of active pharmaceutical ingredients (APIs) since 1987. However, over a period of time, it has shifted its focus toward creating a niche in Oncology generics. In the process, it has developed a strong capability in manufacturing oncology APIs and formulations. Besides this, SLPA is investing in novel drug delivery systems (NDDS) and biotechnology.

We believe that SLPA is well poised to deliver robust earnings CAGR of 41% over FY17-20, led by the commencement of sales in the US market and new product launches in the EU market. SLPA has a healthy pipeline of ~23 pending ANDAs (owned and for partners combined). We expect US sales to reach INR3.3b from INR250m in FY17. There is potential in US sales to grow 50% YoY in FY20, subject to outcome of litigation.

SLPA has the necessary manufacturing capacity and US FDA clearances to succeed in APIs and formulations. It has done well on the compliance part in recent past.

We expect its base business (CRAMS for ICE, Italy), which currently forms 52% of total sales, to remain stable and sustainable following 20% CAGR over FY15-17. The switchover of sourcing to SLPA led such strong growth. SLPA’s customer, ICE, has been enjoying majority share in this product due to complexity associated with sourcing of raw material. With JV formation with ICE for this business, we believe, SLPA to have 13% CAGR in revenues to INR6.4b over FY17-20.