Buy Strides Arcolab - Q1 CY 2011 Result Update - Motilal Oswal

STRIDES ARCOLAB 1QCY11: Operating performance in line led by higher licensing income; 25% topline growth guidance

Strides Arcolab's 1QCY11 net revenues grew 30.5% YoY to Rs4.87b (v/s est of 28.3%YoY growth to Rs4.79b).

EBITDA grew 17.7%YoY to Rs917m (v/s est of Rs877m) while recurring PAT declined by 15.4%YoY to Rs292m (v/s est of Rs386m).

Topline growth was led by specialty segment which reported ~2x growth in revenue to Rs2.4b (vs estimate of Rs2.1b) albeit on a small base.

However, Pharma segment reported muted growth of 1%YoY to Rs2.6b (vs est of Rs2.7b) due to cautious approach towards low margin institutional business.

Adjusted PAT declined by 15.4%YoY to Rs292m against our expectation of Rs386m, primarily due to higher than expected tax provisions and lower other income.

We expect Strides to clock earnings CAGR of 31% over CY10-12, led by ramp-up in revenues from the SI (sterile injectables) segment and core EBITDA margin expansion in line with changing product mix and higher capacity utilization. Return ratios are set to improve over CY10-12 and gearing will decline from 2.0x in CY10 to 1.6x in CY12. At CMP of Rs395, the stock trades at 13.6x CY11E and 10.9x CY12E earnings based on our revised estimates. Maintain BUY with target price of Rs.473.

Source : Equity Bulls

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