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Research
Strides Arcolab - 1QCY12 Results Update - Motilal Oswal
Posted On : 2012-05-02 21:40:43( TIMEZONE : IST )
- Net revenue grew 8% YoY to INR5.3b (v/s our estimate of INR5.2b), EBITDA grew 38% YoY to INR1.27b (v/s our estimate of INR1.02b), while recurring PAT grew 14.8% YoY to INR467m (v/s our estimate of INR392m).
- Excluding the sale of Ascent Pharma, topline growth was led by (1) 42% YoY growth in sterile business revenue to INR3.4b (v/s our estimate of INR3.8b), and (2) 37% YoY growth in the pharma segment to INR1.58b.
- EBITDA grew 38% YoY to INR1.27b (v/s our estimate of INR1.02b), led by significantly higher gross margin on the back of improved product mix. EBITDA margin expanded 520bp YoY to 24% (v/s our estimate of 19.7%).
- Adjusted PAT grew 14.8% YoY to INR467m (v/s our estimate of INR392m), impacted by INR265m in forex losses. However, reported PAT stood at INR6.42b on account of INR6.32b gain on the sale of Ascent Pharma.
STR is set to emerge as a specialty products company with revenue contribution from this segment rising from 28% in CY09 to an estimated 75% in CY13. It has an impressive specialty product pipeline. Large manufacturing capacities are in place to support revenue scale-up, coupled with best-in-class marketing partners like Pfizer and GSK. We believe that the sale of Ascent Pharma at attractive valuations will lead to significant improvement in the company's financials. STR may unlock further value from the sale of the remaining pharma business, as its focus remains on the specialty business. We expect STR to post 24% earnings CAGR over CY11-13, led by revenue ramp-up from the SI (sterile injectables) segment and substantial reduction in interest cost owning to debt repayment. Core EBITDA margin will expand in line with changing product mix and higher capacity utilization. Return ratios are set to improve over CY11-13 and debt-equity will decline from 1.9x in CY10 to 0.7x in CY13. The stock trades at 11.7x CY12E and 11x CY13E EPS. Buy with a revised target price of INR823 (14x CY13E EPS), an upside of 28%.
