4 August 2021
1QFY22 Results Update | Sector: Healthcare
Solara Active Pharma
Estimate change
TP change
Rating change
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CMP: INR1,728
TP: INR2,050 (+20%)
Buy
Comprehensive approach in API/CRAMS to drive growth
Customer additions/differentiated technology aids better visibility in
the CRAMS business
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR m)
Free float (%)
SOLARA IN
36
62.1 / 0.8
1859 / 830
-3/14/59
215
58.9
Financials & Valuations (INR b)
Y/E MARCH
2021 2022E 2023E
16.2 26.0 30.7
Sales
3.9
6.4
7.8
EBITDA
2.2
4.1
5.1
Adj. PAT
17.1 19.4 20.5
EBIT Margin (%)
45.0 82.4 103.4
Cons. Adj. EPS (INR)
93.2 83.1 25.4
EPS Gr. (%)
442.2 534.7 647.3
BV/Sh. (INR)
Ratios
0.2
0.3 0.13
Net D:E
16.6 23.1 24.0
RoE (%)
15.7 21.2 21.6
RoCE (%)
13.3 21.4 20.5
Payout (%)
Valuations
38.0 20.8 16.5
P/E (x)
16.7 14.1 11.2
EV/EBITDA (x)
0.4
0.9
1.1
Div. Yield (%)
(0.3) (2.9)
9.1
FCF Yield (%)
4.0
3.5 2.85
EV/Sales (x)
SOLARA delivered an in line 1QFY22 earnings, led by increased contribution
from new products, ramp in other markets like Asia-Pacific, and healthy
growth in the Contract Research and Manufacturing Services (CRAMS)
business. SOLARA has delivered a robust performance, with EBITDA
margin/PAT growing to 24%/INR2.2b in FY21 from 14%/INR380m in FY18.
SOLARA further aims to achieve 25% revenue CAGR over FY21-25 through
enhanced portfolio offering in generic API, strong scale-up in the CRAMS
segment, and the inorganic route.
We raise our FY22E/FY23E EPS estimate by 5%/7% to factor in: a) benefits
from successful backward integration for Ibuprofen manufacturing, b)
extended tax benefits, and c) increased growth prospects in the CRAMS
segment. We continue to value SOLARA at 13x its 12-month forward
EV/EBITDA to arrive at our TP of INR2,050.
We remain positive on SOLARA as it is well-placed in the API space (product
offering supported by manufacturing capacity/capability) to take advantage
of the favorable demand scenario and building its presence across the
CRAMS value chain. We reiterate our
BUY
rating.
Revenue grew 16.4% YoY to INR4.1b (est. INR4.2b) in 1QFY22.
Gross margin contracted by 100bp YoY to 56% due to the reduced share of
the regulated market business.
EBITDA margin contracted by 160bp YoY to 22.5%.
EBITDA margin contracted at a higher rate due to lower realizations in the
portfolio and increased opex (other expense up 110bp YoY, but partially
offset by a 50bp YoY decline in employee cost as a percentage of sales).
EBITDA grew 9% YoY to INR914m (est. INR953m).
PAT grew 20% YoY to INR507m (est. INR504m).
The management expressed its long-term aspiration of 25% revenue CAGR,
EBITDA margin of 23-25%, and ~30% revenue from the CRAMS segment
over FY21-25. This would be largely driven by the organic route.
Specifically for FY22, it guided at sales/EBITDA margin of INR28b/23-25%
(including the AURORE merger).
SOLARA expects INR1.5-2.2b in synergy benefits in the first year of
operations post the merger of SOLARA and AURORE.
It has been successful in backward integration in the Ibuprofen
manufacturing process. This would enhance the profitability of this product
considerably. SOLARA is one of the only two Ibuprofen manufacturers
globally to have complete backward integration.
The management does not expect any goodwill creation on the AURORE
acquisition.
Net debt is up INR1b to INR5.3b on higher working capital requirements.
line 1QFY22; lower regulated market sales impacts profitability
Highlights from the management commentary
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-21 Mar-21 Jun-20
41.1
44.1
41.9
6.4
4.0
6.7
16.6
13.7
16.7
35.9
38.3
34.7
FII Includes depository receipts
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.