MOSL: STRIDES SHASUN | INITIATING COVERAGE- Making great strides-Robust outlook led by higher sales growth and improved asset utilization

​Strides Shasun | initiating coverage: Making great strides; Robust outlook led by higher sales growth and improved asset utilization

(STR IN, Mkt Cap USD1.5b, INR1000, TP INR1300, 30% Upside, Buy)

• Strides Shasun (STR) is a first generation, vertically integrated global pharmaceuticals company, with business interests in differentiated pharma and branded generics. It sells formulations in regulated markets (51% of FY17 sales), emerging markets (18% of FY17 sales), and to global institutions (16% of FY17 sales). The API business, which would soon largely be a part of Solara, constituted 15% of FY17 sales.
  
• STR has rebuilt its R&D infrastructure, instituted a strong compliance culture across the organization, backed by suitable IT investments, and integrated its manufacturing operations to reduce external dependence. We believe it is now in a position to begin reaping the benefits of the ~USD550m investments it has made in focus geographies in the last three years.
  
• Given the consistent compliance history of its API facilities and low cost manufacturing, we expect the API business (through Solara) to deliver 23% revenue CAGR over FY17-20 and 18-20% EBITDA margin.
  
• Excluding the API business, we expect revenue to grow at a CAGR of 20% over FY17-20 to INR52b, driven by 43% CAGR in the US business, 16% CAGR in the Australia business, 15% CAGR in emerging markets and 15% CAGR in the institutional business. Adjusted earnings of Strides Pharma are likely to grow at a CAGR of 44%.