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Strides Arcolab - 2QCY12 Results Update - Motilal Oswal
Posted On : 2012-08-03 10:46:17( TIMEZONE : IST )
Strides Arcolab's (STR) 2QCY12 performance was below our expectations. Key highlights:
- Net revenue declined 12.6% YoY to INR5.1b v/s our estimate of INR5.7b. EBITDA grew 4.5% YoY to INR1.13b v/s our estimate of INR1.41b. Recurring PAT declined 83% YoY to INR117m v/s our estimate of INR801m, impacted by worse than anticipated operational performance, higher interest cost and forex loss of INR734m.
- Excluding the sale of Ascent Pharma, topline grew ~30% YoY, led by 39% YoY growth in sterile business revenue to INR3.1b v/s our estimate of INR4.1b. Pharma segment revenue grew 18% YoY to INR2.46b even on a high base, boosted by one-off sales in the tender business.
- EBITDA grew 4% YoY to INR1.13b v/s our estimate of INR1.41b, led by higher gross margin. EBITDA margin expanded 360bp YoY to 22.2% v/s our estimate of 24.7%. Margins were driven by improved product mix, YoY decline in manpower expense due to divestment of Ascent Pharma and reduced other expenditure.
- Adjusted PAT declined 83% YoY to INR117m (v/s our estimate of INR801m), impacted by by worse than anticipated operational performance, higher than estimated interest cost and forex loss of INR734m. However, reported PAT grew 31.3% YoY to INR905m, led by INR946m gain reported on the sale of Ascent Pharma.
STR is set to emerge as a specialty products company, with revenue contribution from this segment increasing from 28% in CY09 to an estimated 67% in CY13. The company has an impressive specialty product pipeline. It has large manufacturing capacities in place to support revenue scale-up, coupled with best-in-class marketing partners like Pfizer and GSK. We expect STR to post 24% earnings CAGR over CY11-13, led by revenue ramp-up in the SI (sterile injectables) segment and substantial reduction in interest cost owing to debt repayment. Return ratios are set to improve over CY11-13 and debt-equity should decline from 1.9x in CY10 to 0.7x in CY13. The stock trades at 13.3x CY12E and 12.1x CY13E EPS. Buy with a revised target price of INR829 (14x CY13E EPS), an upside of 18.8%.
