11 December 2019
Update | Sector: Healthcare
TP: INR440 (+22% )
Injectables – new growth levers in the making
Strides Pharma’s (STR) US generics business has taken long strides with sales
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
32.2 / 0.5
550 / 288
increasing to USD57m in 2QFY20 from USD10m in 4QFY18. More levers are being
created to drive growth in this business over the next 4-5 years.
Through Stelis, STR is not only developing own biosimilars but also planning to
provide fully integrated CMO for drug products and substance.
In addition to the oral solids portfolio, STR plans to re-build the sterile injectable
portfolio with 15-20 annual filings of niche products using technology platforms built
in-house and also via strategic partnerships.
We expect earnings to increase 5x over FY19-21, partly led by a low base of FY19. We
continue valuing STR on an SOTP basis to arrive at a target price of INR440. Buy.
Financials Snapshot (INR b)
FY19 FY20E FY21E
EBITDA (Rs b)
EPS Gr (%)
296.2 319.1 344.7
Shareholding pattern (%)
Sep-19 Jun-19 Sep-18
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
US generics on robust growth path:
After delivering 31% CAGR in US generics
revenue over FY17-19, STR appears well positioned to sustain this momentum
led by its robust product pipeline (~40 under development/targets to file 20
ANDAs every year) and superior execution in approved products (led by ‘no
failure to supply’, integrated APIs and cost leadership). It targets to take the
annual revenue run-rate to ~USD400m over the next 12-18 months from
USD113m in 1HFY20.
Creating robust product pipeline in ‘follow-on’ biologics:
With an investment
of USD160m via Stelis, STR has built a fully integrated bio-pharma business with
products nearing the filing stage and availability of a manufacturing set-up for
commercial execution. This would not only be used for in-house biosimilars but
also to cater to CMO service with full integration of manufacturing. STR targets
to achieve revenue of USD150-250m in this business over the next 3-4 years.
Re-entering sterile injectables:
After the conclusion of the non-compete period
on the Agila transaction, STR will build a portfolio of sterile injectables which are
either under the shortage list or facing challenges in terms of manufacturing.
Further, it intends to use technology platforms via strategic partnerships to
build differentiated products in this business. Overall, STR intends to tap
opportunities with an aim to achieve revenue of USD200-400m over the next 2-
New launches, increased penetration to drive business in other regulated
The two-pronged strategy of (a) increasing penetration of the already
approved products by entering new territories and (b) further building the
product portfolio led to strong revenue growth of 67% YoY from other regulated
markets in 1HFY20. Healthy order book, opportunities from product shortage
(particularly in the UK) and new launches in the EU will provide STR with a good
platform to grow business in the other regulated markets over the next 2-3
years (we forecast at least 50% revenue CAGR over the next two years).
Valuation and view:
STR is building multiple levers in the form of a healthy
ANDA pipeline and a specialized portfolio of injectables/bio pharma to deliver
strong earnings growth over the next 3-4 years. We expect earnings to increase
5x over FY19-21, partly led by a low base of FY19. We continue valuing STR on
an SOTP basis to arrive at a target price of INR440.
Tushar Manudhane – Research analyst
(Tushar.Manudhane@MotilalOswal.com); +91 022 6129 1536
Hitakshi Chandrani – Research analyst
(Hitakshi.Chandrani@motilaloswal.com); +91 22 6129 1557
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