MOSL: STRIDES PHARMA (Buy)-Course correction on track, expect better traction going ahead
Strides PHARMA: Course correction on track, expect better traction going ahead
(STR IN, Mkt Cap USD0.5b, CMP INR423, TP INR520, 23% Upside, Buy)
- Sales driven by regulated markets: Revenue declined 4.8% YoY to INR7.3b (our estimate: INR6.6b) in 2QFY19 on account of muted momentum in the US (sales flat YoY at INR2.2b), Institutional (-42% YoY; accounts for 15% of sales) and Africa (-28% YoY; 8% of sales) businesses. Nevertheless, Australia business (+12 YoY; 33% of sales) and other regulated markets (+52% YoY) provided essential support to overall sales. Gross margin expanded 200bp YoY to 52%, led by a superior product mix and currency tailwinds. EBITDA margin shrank 40bp YoY to 13.6% (our estimate: 13.8%), as operational leverage is yet to kick in. Consequently, EBITDA declined 8% YoY to INR996m (our estimate: INR913m). In addition, higher depreciation led to a loss of INR13m (our estimate of PAT of INR180m). For 1HFY19, sales/EBITDA stood at INR14b (-2% YoY)/INR1.8b (+1% YoY); STR incurred a loss of INR54m v/s PAT of INR419m in 2HFY18.
- Other key highlights: US sales improved sequentially to USD32m (from USD26m), led by an improved market share in key products and better supply chain execution. STR has guided for incremental sales of ~USD6-7m each for the next two quarters, led by new launches and further traction in existing molecules. STR is on track to file 18-23 products in FY19. STR has guided for final update on the Apotex Australia business merger by mid-December 2018. The company expects to bring other regulated market business on a high growth path by enhancing product portfolio and entering new geographies.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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