MOSL: STRIDES PHARMA (Buy)-Focus on enhancing US business/reducing financial leverage
Strides Pharma: Focus on enhancing US business/reducing financial leverage; Quarterly performance operationally in line
(STR IN, Mkt Cap USD0.6b, CMP INR490, TP INR590, 20% Upside, Buy)
- Strides Pharma (STR) has decided to sell its entire stake in Arrow (Australian business) to Apotex for a consideration of AUD394m (US282m). The stake sale – which implies an attractive valuation of 19x EV/EBITDA – would enable STR to reduce its debt by at least USD160m.
- Separately, STR announced that it would acquire 100% stake in Vensun Pharma and the remaining 50% stake in the JV with Vivimed for ~USD29m. This would enhance its control on partnered ANDAs and manufacturing facility for the US market.
- For 3QFY19, STR delivered sales/EBITDA of INR8b/INR1.3b (in-line). Adj. PAT of INR240m came in lower than our estimate of INR333m owing to lower other income and a higher tax rate.
- We raise our FY19/20 EPS estimate by 2%/6.4% to factor in reduced interest outgo/amortization and better profitability in other regulated market and the US. We also increase our SOTP-based price target to INR590 (prior: INR530). We remain positive on STR on the back of its improved focus on the US market, reduced financial leverage and superior execution in other regulated market. Reiterate Buy.
Arrow stake sale to reduce financial leverage
- STR has decided to sell its entire stake in Arrow to Apotex. However, it would remain the preferred supplier for the merged entity and retain IPs of all products. As a result, it will still retain 40-50% of Arrow’s existing EBITDA (~USD29m, annualized).
- The company would receive AUD394m (USD282m) by exiting its investment in Arrow, of which AUD300m (USD215m) will be received upfront and AUD94m (USD68m) will be deferred through a secured instrument.
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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