4 February 2021
3QFY21 Results Update | Sector: Healthcare
Strides Pharma
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: INR887
TP: INR980 (+11%)
BUY
Slower US/Africa biz drag down earnings
Robust growth outlook for other regulated market business
STR IN
90
79.5 / 1.1
1000 / 271
-11/55/59
711
70.3
Financials & Valuations (INR b)
Y/E MARCH
2021E 2022E 2023E
Sales
32.9 38.6 42.7
EBITDA
6.4
8.2
9.3
Adj. PAT
2.3
3.9
4.9
EBIT Margin (%)
13.2 15.4 16.2
Cons. Adj. EPS (INR)
25.8 44.1 54.4
EPS Gr. (%)
70.0 70.9 23.2
BV/Sh. (INR)
306.8 340.2 381.4
Ratios
Net D:E
0.3
0.2
0.1
RoE (%)
8.8 13.6 15.1
RoCE (%)
9.4 12.0 13.1
Payout (%)
24.2 24.2 24.2
Valuations
P/E (x)
34.3 20.1 16.3
EV/EBITDA (x)
15.3 11.8 10.1
Div. Yield (%)
0.7
1.0
1.2
FCF Yield (%)
3.4
4.9
7.7
EV/Sales (x)
3.0
2.5
2.2
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
forward our TP to INR980 on an SOTP basis. We remain positive on a healthy
product pipeline in regulated markets, new product additions in the
Institutional segment, and an improving outlook for Stelis. Maintain Buy.
STR’s 3QFY21 sales were up 13.6% to INR8.3b (our est.: INR8.7b).
Emerging Market (EMs) sales were up 61% YoY to INR1.5b (18% of sales).
OTR sales were up 37% YoY to INR3b (36% of sales). US sales declined 16%
YoY to INR3.9b (46% of sales). Adjusted for Ranitidine sales in 3QFY20, US
sales grew 10% YoY.
The gross margin (GM) contracted 650bp YoY to 57.9% due to a change in
the product mix.
The EBITDA margin was down 550bp YoY to 19.2% (our estimate: 21%) due to
lower GMs, partially offset by lower other expenses (-110bp as a % of sales).
EBITDA was down 12% YoY to INR1.6b (our estimate: INR1.8b).
PBT before one-off expenses was down 22% YoY to INR854m.
STR reported net exceptional loss of INR131m on account of the write-down
of inventory/other expenses due to the Ranitidine recall (INR476m). This
was partially offset by gains from exchange on foreign currency loans,
derivatives, and deferred consideration (INR360m).
Adj. PAT was down ~40% to INR458m (our est.: INR785m).
For 9MFY21, sales/EBITDA was up 13%/4%YoY to INR24b/INR35b, but adj.
PAT declined 7.4% YoY to INR1.5b.
Aditya Puri would be the Chairman of the Stelis board. STR’s promoter has
committed USD50m for growth toward Stelis. Overall, USD100m would be
needed to fund all of its programs over the next three years.
Stelis is on track to achieve breakeven in FY22. STR would complete its
already committed investments in Stelis before Mar’21.
Stelis’ post-money valuation from the last transaction is USD155m.
STR has decided not to invest in the Injectables platform under Steriscience.
US sales guidance is now at ~USD220m for FY21.
Effective tax rate would be 10–12%.
Net debt reduced by INR643m QoQ to INR13b.
Change in product mix leads to decline in profitability
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Dec-20 Sep-20 Dec-19
29.7
29.7
31.3
16.7
15.3
20.1
25.2
27.0
27.2
28.5
28.1
21.5
FII Includes depository receipts
Highlights from management commentary
Tushar Manudhane - Research Analyst
(Tushar.Manudhane@MotilalOswal.com)
Bharat Hegde, CFA
(Bharat.Hegde@motilaloswal.com);
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.