Strides Pharma Science Ltd. share price target

Strides Pharma (STR)'s 3QFY21 performance came in below estimates due to the COVID-related impact on the US and Africa biz. Recovery in the Other Regulated (OTR) business was led by healthy volume traction. At the strategic level, STR would de-merge its Biotech business under Stelis Biopharma and intends to list this, thereby unlocking value for shareholders. We cut our earnings estimate by 19%/7%/5% for FY21/FY22/FY23, accounting for weak Flu season related demand in the US and slower offtake of medicines related to Acute therapies in the Africa business. We roll...

Strides Pharma (STR)'s 2QFY21 performance came in below estimates due to COVID-related a) disruptions at its manufacturing facilities and b) softness in demand in the UK / select European countries. However, the outlook remains positive, with normalcy back in manufacturing operations. We cut our earnings estimate by 10.2%/4.9% for FY21/FY22, factoring in COVID-related disruption in 2QFY21. We value STR on a 12M forward SOTP basis EV/EBITDA of 11x for Regulated segment, 6x for Emerging Markets (EM) segment, and 7x for Institutional segment to arrive at Target Price of...

Q2FY2021 was a soft quarter for Strides. The results missed estimates. Revenues grew 11% YoY to Rs 793 crore while the adjusted PAT at Rs 44 crore declined by 9%. Strtides expects a marked improvement in its performance in 2HFY2021 as compared...

We roll our price target to INR650 on a 12M forward SOTP basis (8x EV/EBITDA for the US / Other Regulated markets, 6x for Emerging Markets, and 5x for Institutional). Considering this and its increased market share in commercialized products, we expect US sales to revive and exhibit a 6% CAGR to USD270m over STR recorded the highest ever quarterly revenue of INR2.6b in the Other Regulated market, implying growth of 53% on a YoY basis in 1QFY21. We expect the business to exhibit a 23% CAGR in sales to INR12.6b over STR exhibited 17% YoY / 47% QoQ growth in the Emerging Markets business, led by an increase in primary sales in Africa. in Other Regulated and 52% sales CAGR in Emerging Markets, supported by our price target to INR650 on a 12M forward SOTP basis (8x EV/EBITDA for US / Other Regulated, 6x for Emerging Markets, and 5x for Institutional).

We upgrade our rating to Accumulate based on 10x FY22 EPS with a target of price of Rs.485 as new launches in U.S and other regulated markets will drive growth. Revenues were down 26% yoy and down 16% qoq mainly on...

The U.S sales grew 62% YoY (16% QoQ) during the quarter, with the move to front end sales paying dividends. Other regulated markets saw 54% in YoY growth in revenue, led by...

Further, the company appears set to build biopharma and injectables as new levers of growth over the next 3-4 years. We expect ramp-ups to progress well on the back of new launches and increased traction in existing products. We raise our EPS estimate by 21%/12.6%/8.4% for FY20/21/22 to factor in strong traction in US generics and other regulated markets. Re-iterate led by US business (+62% YoY/16% QoQ to INR4.6b or USD66m) and other regulated markets business (+54% YoY to INR2.2b). However, emerging market sales declined 62% YoY to INR566m. Gross margin (GM) expanded 1,360bp YoY/620bp QoQ to 58.2%, led by a better product mix and partly on a low base of 3QFY19. Accordingly, EBITDA margin improved 420bp QoQ/1,200bp YoY to 24.7% Adj. PAT grew at a higher rate of ~330% (INR794m v/s our est.

11 December 2019 After delivering 31% CAGR in US generics revenue over FY17-19, STR appears well positioned to sustain this momentum led by its robust product pipeline (~40 under development/targets to file 20 ANDAs every year) and superior execution in approved products (led by no failure to supply, integrated APIs and cost leadership). The two-pronged strategy of (a) increasing penetration of the already approved products by entering new territories and (b) further building the product portfolio led to strong revenue growth of 67% YoY from other regulated markets in 1HFY20. Healthy order book, opportunities from product shortage (particularly in the UK) and new launches in the EU will provide STR with a good platform to grow business in the other regulated markets over the next 2-3 years (we forecast at least 50% revenue CAGR over the next two years). STR is building multiple levers in the form of a healthy ANDA pipeline and a specialized portfolio of injectables/bio pharma to deliver strong earnings growth over the next 3-4 years.

US business grew by 125%QoQ driven by healthy performance in the base portfolio with no major price erosions. Remediation work has started in response to the warning letter (WL) by USFDA on Puducherry plant (~7% of the total revenue of SS) with the management transferring production to other locations. Exit from Arrow investments at Australia got successfully completed with the proceeds reducing the debt significantly ~Rs1000cr. Regulated markets witnessed a modest growth (13%YoY) while...

With the US biz de-risked and traction gained in other segments on the back of additional capacities, we expect ~6% CAGR over FY19-21E in revenue (~20% adjusted for Aus divestment). Ramp up in US and reg. markets will drive profitability, while reduced depreciation and interest cost (Aus divestment) will enable 146% PAT CAGR on a low base. We remain optimistic of an improved operating performance and are relieved to see the reduction in debt and a healthier balance sheet. The valuations remain attractive at 12.2/9.0x FY20/21E P/E. We maintain BUY on Strides Pharma (STR) following an in-line 1QFY20. The uptick in US continues, while other segments continue to perform well. Our TP is unchanged at Rs 650 (15x FY21E EPS + Rs 30/sh for biopharma).