30 October 2020
2QFY21 Results Update | Sector: Healthcare
Strides Pharma
Buy
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
CMP: INR673
TP: INR790 (+17%)
2Q – COVID-led aberration hurts performance
Prospects remain promising across markets
STR IN
90
60.3 / 0.9
765 / 271
-12/28/77
596
70.3
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
27.5 34.3 39.2
EBITDA
5.3
7.0
8.4
Adj. PAT
1.4
2.8
4.1
EBIT Margin (%)
13.1 14.4 15.6
Benefit of superior product mix offset by reduced operating leverage
Cons. Adj. EPS (INR)
15.2 31.7 45.8
EPS Gr. (%)
72.1 108.8 44.5
STR’s 2QFY21 revenues were up 11% at INR7.9b (our est.: INR8.3b).
BV/Sh. (INR)
282.6 312.1 346.8
EM sales were up 57% YoY to INR1.5b (19% of sales), US sales were up 7%
Ratios
YoY at INR4b (51% of sales), and Other Regulated Markets (OTR) sales were
Net D:E
0.3
0.3
0.2
up 7% YoY at INR2.4b (30% of sales).
RoE (%)
5.2 10.7 13.9
RoCE (%)
6.9 10.4 12.2
The gross margin (GM) expanded 290bp YoY to 61.1% on a superior product
Payout (%)
82.4 24.2 24.2
mix. However, the EBITDA margin was down 70bp YoY to 19.8% (our est.:
Valuations
20.2%) due lower operating leverage (employee cost / other expenses at
P/E (x)
45.1 21.6 15.0
+210bp YoY / +150bp YoY).
EV/EBITDA (x)
15.1 11.4
9.4
Div. Yield (%)
0.5
1.1
1.3
EBITDA was up 7% YoY to INR1.6b (our estimate: INR1.7b).
FCF Yield (%)
1.0
4.8
6.9
PBT before one-off expenses grew 4% YoY to INR804m.
EV/Sales (x)
2.9
2.3
2.0
STR reported exceptional gains of INR131m on gains on FX loans/derivatives,
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
INR790. We remain positive on STR on the back of a healthy product
pipeline for the Regulated and Institutional segments and market share
gains in existing products. Maintain BUY.
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-20 Jun-20 Sep-19
29.7
29.7
31.3
15.3
19.4
21.2
27.0
26.8
25.3
28.1
24.1
22.3
deferred considerations, and intra-group loans.
Adjusting for the same, PAT was down ~6% at INR493m (our est: INR706m).
Loss of INR300m in its associates in the Biotech and CHC segments led to
YoY decline in adj. PAT, despite YoY growth in PBT.
Sales / EBITDA / adj. PAT for 1HFY21 was up 12.5%/14%/21.7% YoY to
INR15.8b/INR3b/INR1b.
FII Includes depository receipts
Highlights from management commentary
STR experienced price erosion in base products for the first time. STR guided
for USD230m US sales over FY21 (USD104m for 1HFY21), led by market
share gains and new launches. STR has guided for 8+ ANDA launches for
FY21.
Growth prospects in OTR remain promising on the back of enhanced product
offerings as well as reach.
Net debt was INR13b at the end of 2QFY21.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Tushar Manudhane - Research Analyst
(Tushar.Manudhane@MotilalOswal.com)
Bharat Hegde, CFA
(Bharat.Hegde@motilaloswal.com);
Hitakshi Chandrani
(Hitakshi.Chandrani@motilaloswal.com)