Buy Strides Acrolab - BP Wealth Diwali Picks 2012

Strides Arcolab is part of the Strides Group, a global life sciences company with proven expertise in specialty pharmaceuticals, pharma generics and branded generics as well as veterinary products and plant-based healthcare products.

Investment Rationale

Robust growth in Agila to drive growth

The company's steriles division (Agila Specialities) has shown strong traction. The management expects margins to expand as product launches for the US take place from Polish Facility and Star drugs. In addition, we expect Penem launches in Q1CY13 in US which would be a major growth driver for the company.

Extensive ANDA filings status

In Sterile space, the company has extensive ANDA filings of 189 (accounts for 80% filings), of which 74 are already approved and 50 have been launched. The company has got approvals for 15 products for the Canadian JV with Jamp Pharma which will be launched in the due course in the region. The company expects to launch Penems in regulated markets by Q4CY12. We expect Penems to generate sales of USD30mn for the company in CY13.

Specialty division to perform well going forward

The company launched Oxaliplatin in August and the company is confident of achieving 15-20% market share. The company's Hosur facility received FDA approval for site transfers and will commence supply in November 2012.

Valuation & Outlook

We have valued this stock based on PE multiple and assigned a target PE multiple of 14x to its CY13 earning estimates (excluding licensing income). We arrived at a target price of Rs 1,050 per share which provides potential upside of 19.3% from current level.

Technical Outlook

Stock has seen some profit booking after making 52 week high of 957 and now has strong support at 850-790. Long term indicators are in buy mode which suggests the stock to continue its upmove for long term.

Source : Equity Bulls

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