MOSL: STRIDES SHASUN (Buy)-Divestment to focus on profitable businesses
​STRIDES SHASUN: Divestment to focus on profitable businesses
(STR IN, Mkt Cap USD1.1b, CMP INR787, TP INR1214, 54% Upside, Buy)
- We believe that sale of domestic formulation business at 2.7x EV/FY17 sales is not only at good multiple but would also enable Strides Shasun (STR) to focus on US and Australia’s regulated market and Africa business in emerging market. The deal also enables STR to reduce financial leverage, thereby improving profitability.
- Transaction details: Strides Shasun (STR) has entered into definitive agreement with Eris Lifesciences for sale of domestic branded formulation business for cash consideration of INR5b. In this transaction, STR would divest portfolio of 130+ brands along-with employees forming part of the domestic branded business. STR would retain global rights of these products. The transaction is subject to customary closing conditions and both companies intend to close the transaction by 30 November 2017.
- Deal to improve operating margin and reduce financial leverage: STR, over past two years had spent ~INR2.5b to acquire brands from J&J, Sun Pharma and Medispan. The sale of these brands was INR1.8b in FY17, implying EV/sales of 2.7x, which is decent as this business has been EBITDA neutral for STR. Thus, sale of this business would reduce revenue for STR and improve EBITDA margin. Repayment of debt of INR4b would reduce annual interest outgo to the tune of INR350m, thereby improving profitability as well.
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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