MOSL: STRIDES PHARMA (Buy)-Operating leverage kicks in-earnings growth set to revive
Strides Pharma: Operating leverage kicks in; earnings growth set to revive
(STR IN, Mkt Cap USD0.6b, CMP INR485, TP INR635, 31% Upside, Buy)
- Strong traction in US drives revenue/profitability: Sales increased 25% YoY to INR8.3b (our estimate: INR9.3b), driven by US business (44% of sales) growth of 181% YoY (+31% QoQ) to INR3.7b (USD53m). Other regulated markets sales, too, increased 14% YoY to INR1.3b. However, Emerging Markets /Institutional business /Australia business saw a 15%/53%/13% YoY decline in sales, dragging growth to some extent. Gross margin (GM) shrank 280bp YoY to 53.5%. However, EBITDA margin expanded 500bp YoY to 18.9% (our estimate: 15.9%), led by a 230bp/560bp YoY reduction in employee/other expenses. Sequentially, both aforementioned expenses were stable, resulting in 280bp expansion in EBITDA margin.
- Loss in JV/associates hurts PAT: Higher interest cost (INR627m v/s INR501m QoQ/INR455m YoY) was offset by increased other income and extraordinary income (associated with forex gain and revaluation of investment). However, adj. PAT of INR361m was lower than our estimate of INR636m due to higher loss in JVs/associates. For FY19, revenue/EBITDA grew 6%/18% YoY to INR30b/INR4.7b, while adj. PAT was down 39% YoY to INR613m.
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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