TP: INR1,300 (+38%)
Niche approval kicks in
Thesis playing out; reiterate Buy
12 September 2017
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
Financials Snapshot (INR b)
2017 2018E 2019E
303.3 341.1 401.5
Shareholding pattern (%)
Jun-17 Mar-17 Jun-16
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
The approval for Potassium Citrate Extended Release (PCER) has triggered long-
awaited approvals for niche molecules for STR, in our view.
Though investors like STR for its (1) niche ANDA pipeline, (2) strong regulatory
compliance, and (3) credible management, they have been concerned over delay in
approvals. In its 1QFY18 results concall, the company had pointed out that the delays
were only procedural and that it had no regulatory issues pending. Yet, there was
skepticism among investors, as STR was not getting approvals despite compliant
The PCER approval vindicates the company’s stand and would reduce investor
concerns. G-Lovaza is another likely opportunity over the medium term for STR.
on STR with a Buy rating. We remain positive, given
STR’s healthy ANDA pipeline for the US market, significant value accretion potential
in API business, and strong growth trajectory in Australia business. We reiterate Buy.
STR’s first extended release tablet approval:
STR received final approval for
Potassium Citrate Extended Release tablets (5mEq, 10mEq, and 15mEq). The
market size for this product is ~USD110m.
Annualized sales of USD30m expected from this niche product:
companies have final approval for this product and only one sells this product in
the US market. Since there are only two DMF filers for this product, competition
would be limited for a considerable period.
Based on 30% price discount and 55%
market share, we expect STR to garner annual sales of USD30m from this
STR on track with approvals for low competition products:
This molecule reflects
STR’s strategy of developing complex products with limited competition. Its recent
approvals are such that they provide considerable upside in terms of US revenue,
though market size is in the range of USD60m-200m. This is due to limited
competition for those products; STR is well placed to seize the opportunity.
G-Lovaza – another medium-term opportunity:
The other limited-competition
product for STR over the medium term is g-Lovaza. The market size of this product
is about USD300m. Based on competition and price discounts, we expect STR to
have annual sales of USD30m from this product post final approval. We expect 43%
CAGR in US sales over FY17-20 to USD278m.
US ANDA pipeline remains robust:
STR has guided for more such molecules in the
pipeline. With this approval, it has 28 ANDAs pending for approval. STR has
maintained its guidance of 15-20 filings in FY18.
Valuation and view:
We expect 20% CAGR in sales, 25% CAGR in EBITDA, and 44%
CAGR in PAT over FY17-20. We value STR on sum-of-the-parts (SOTP), valuing the
pharma business at 18x FY19E earnings and Solara at an EV of 13x FY19E EBITDA to
arrive at price target of INR1,300. Reiterate
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); +91 022 6129 1536
Rajat Srivastava – Research Analyst
(Rajat.Srivastava@motilaloswal.com); +91 22 3010 2511