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MOSL: SHILPA MEDICARE (Buy)-Op. leverage yet to kick in-faster approvals/launches crucial for growth

Shilpa Medicare: Op. leverage yet to kick in; faster approvals/launches crucial for growth

(slpa IN, Mkt Cap USD0.4b, CMP INR377, TP INR480, 27% Upside, Buy)

 

• Revenue growth impacted by CRAMS: Revenue declined 7% YoY (+7% QoQ) to INR1.7b (our estimate: INR1.6b) in 3QFY19. SLPA maintained its momentum in US business, where sales grew 46% YoY to INR365m (21% of sales). This, however, was offset by the subdued performance of CRAMS business, where sales declined by 48% YoY to INR260m (15% of sales), particularly due to the exit from CRAMS JV. Captive consumption led to a 13% YoY decline in onco API sales to INR610m (35% of sales).
• EBITDA margin expansion restricted by higher employee/other expenses: Gross margin expanded by ~1,111bp YoY to 62%, led by the increased share of formulation sales. However, EBITDA margin expanded by only 40bp YoY to 15.1% due to increased operating cost (employee expenses up 558bp YoY and other expenses up 507bp YoY). Thus, absolute EBITDA declined by 4% YoY to INR262m (our estimate: INR391m). On a sequential basis, EBITDA margin shrank 804bp YoY due to increased RM cost. SLPA incurred an exceptional loss of INR57m as it provided for impairment in its investment in the commercial paper of IL&FS. Adjusting for the same, PAT was up 20% YoY to INR185m (our estimate: INR263m). For 9MFY19, sales/EBITDA/PAT stood at INR5.3b (-4.3%/INR1.2b (unchanged)/INR739m (+2% YoY).