Strides Pharma Science Ltd. share price target

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...

Q2 revenue growth (18% YoY) was in line, but EBITDA declined 15% YoY (12% below our expectations) on lower gross margin of 51.4% (down 570 bps YoY) and higher other expenses. Gross margin declined due to lower contribution of higher margin anti-malaria tender sales, and higher sales of lower margin

Maintain BUY with a TP of Rs 1,200 (18x Sep19E + Rs 100/sh for Solara + Rs 30/sh for biopharma). Strides Shasuns (STR) 2QFY18 performance was an improvement over 1QFY18. However, the YoY performance remained subdued. Total revenues grew ~14% YoY to ~Rs 10bn. Sequential growth was higher at ~18%. This was driven by a ~21% QoQ jump in regulatory market sales. EBITDA came in at ~Rs 1.3bn (-15% YoY), and the margin was 13.2%, down ~450bps YoY. Although there was a sequential improvement, it was lower than expectations. PAT came in at Rs 215mn, down ~75% YoY, leaving a long way to go to achieve our FY18 estimate of ~Rs 3.1bn.

Strides Shasun's (STR) 2QFY18 sales of INR10b were better than our estimate of INR8.9b. EBITDA margin of 13.2% missed our estimate of 14.5%. Adjusted PAT of INR253m too was lower than our estimate of INR439m. Regulated market and branded generics drive sales growth: Sales grew 4.4% YoY (+18.2% QoQ) to INR10b for the quarter. With a trough formed in 1QFY18, there has been increased business from the regulated market, and also from branded generics in the emerging market. Weak institutional business in the emerging market affected overall growth for the quarter....

Initiate coverage with BUY rating and a TP of Rs 1,200 (18x Sep-19E + Rs 100/sh for Solara + Rs 30/sh for the biopharma investments). Over the last decade, Strides Shasun (STR) has given its shareholders a phenomenal ~30% compounded annual return. Capital invested in Oct-07 would have grown ~10x today. While STRs aggressive M&A; activity can be viewed negatively in-terms of capital allocation, its track record of value creation cannot be questioned. The companys philosophy on this remains unchanged and its focus remains firmly on enhancing shareholder wealth.

Q1 revenue growth (10% YoY) was in line, but EBITDA declined 34% YoY (37% below our expectations) on lower gross margin of 50.2% (down 260 bps YoY). Gross margin declined due to (1) price erosion in key partnership products in US; delay in its key approvals

Revenue decreased by 5.25% to Rs. 841.77 Cr in Q1FY18 when compared to the previous quarter. Revenue decreased by 5.25% to Rs. 841.77 Cr in Q1FY18 when compared to the previous quarter.

Strides reported Q4'17 EBITDA of Rs 1.56bn, 28% below our expectations, hit by challenging environment across key markets. EBITDA including other income was Rs 2.1 bn, which is ~95% of H2'17 EBITDA guidance.

Revenue fell by 8.86% to Rs. 522.8 Cr in Q4FY17 when compared to the previous quarter.

Revenue decreased by 4.98% to Rs. 876.29 Cr in Q3FY17 when compared to the previous quarter. On the other hand, it grew by 5.11% when compared with Q3FY16.