Strides Arcolab - Vancomycin led to higher net profit; we maintain a Hold - Anand Rathi

Strides' reported 2QCY12 results were largely in line with our estimates. Revenue declined 11% yoy to Rs.5.5bn, while adjusted net profit came in at Rs.729m, more than our estimated Rs.656m chiefly on higher profitability from vancomycin sales in which Strides has secured a 30% market share. We are positive on the company's growth outlook, but maintain our Hold rating due to fair valuations.

- 2QCY12 results. Revenue declined 11% yoy to Rs.5.5bn, in line with our estimated Rs.5.4bn. Revenue declined on account of the sale of the Ascent subsidiary; adjusted for that, revenue grew 30% yoy. The EBITDA margin (adjusted for forex loss of Rs.240m) rose 470bps yoy to 28.2% on the greater profitability in vancomycin which saw less-than-expected price erosion. Adjusted net profit grew 35.2% yoy to Rs.729m.

- Segment-wise performance. The specialty segment (sterile injectables) grew 38% yoy to Rs.3bn led by new product launches. Eight new products were commercialized in 2QCY12. The pharma division (excl. the Ascent subsidiary) grew 26% yoy, led by the launch of vancomycin. Licensing income during the quarter was Rs.570m vs Rs.729m in 2QCY11.

- Conference call highlights. The vancomycin contribution may come down due to keener competition. Licensing income would be US$50m-60m in CY12. The contribution from the Star Drugs plant would start from 4QCY12. The launch of products from the JV with Jamp Pharma in Canada would start shortly at a gradual pace. The current D/E is 0.65x and the company has no major capex plans at present.

- Valuation. The stock trades at 16.3x CY12e and 13.6x CY13e earnings. We maintain a Hold due to fair valuations, with a target of Rs.718 based on 14x CY13e earnings. Risks: Regulatory hurdles and currency fluctuations.

Source : Equity Bulls

Keywords