Accumulate Strides Pharma Science Ltd for target Rs.731 - Geojit Financial Services Ltd
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Healthy growth across geographies...
Strides Pharma Science Ltd. (STAR) is an R&D focussed, vertically integrated pharmaceutical company with an experienced management team having presence across multiple therapeutic segments.
• Strides reported its H1FY24 consolidated revenue at Rs.1,929cr (5% YoY) with continued momentum in both the U.S and regulated markets. The US markets witnessed a 17.1% YoY growth in H1FY24.
• Cost control measures and softening freight costs have resulted in an EBITDA expansion by 846bps in H1FY24 to Rs.320cr
• Strides plans to divest its Singapore facility to a Rxlinet Biohub and the Stellis plant to Syngene, thereby reduce debt.
• Driven by effective debt reduction, cost optimisation, growth in the US business owing to a strong pipeline and redefining CDMO business, we expect healthy traction in the coming quarters.
• However, in light of the recent rise in the prices and growing concerns on higher valuation, we downgrade our rating to “Accumulate” based on 36x FY26E EPS and a target price of Rs. 731.
Revenue crossed Rs.1,000 cr in Q2FY24
Strides reported its H1FY24 consolidated revenue at Rs.1,929cr (5% YoY), with continued momentum in both the U.S. and regulated markets.
New product launches and improvements in market share for existing products in new geographies supported the topline. US markets witnessed 17.1% YoY growth to Rs.969cr in H1FY24.
Other regulated markets and emerging markets reported 12.5%/13.9% YoY growth to Rs.614cr/190cr owing to the strategic exit of certain low-margin products. Strides’ gross margin saw an improvement driven by enhanced business mix and procurement synergies. But witnessed a degrowth in institutional business.
Cost control measures and softening freight costs have resulted in an EBITDA expansion of 846bps in H1FY24 to Rs.320cr. However, during the first half, Strides reported a net loss of Rs.32cr, on account of loss incurred by Stelis Biopharma.
Optimising manufacturing network & new launches to aid growth
As part of optimizing manufacturing facilities, Strides plans to divest the Singapore facility to a Rxlinet Biohub and the Stellis plant to Syngene. These will be expected to be completed in Q3 FY24 and will reduce the debt further. Moreover, the company currently has more than 260 active ANDAs and plans to launch 10–15 products annually in the U.S., improving future revenue visibility (~$250 million in FY24). In the emerging markets, a robust product pipeline and new registrations in newer geographies are poised to propel growth in the short term
Redefining CDMO business as 'Onesource.’
Stelis Biopharma is strategically transitioning into the high-growth CDMO business "Onesource," aiming to achieve EBITDA and PAT positive in the H2FY24/FY25, respectively.
In this transformation, Strides Pharma plans to demerge its Oral Soft Gelatin and SteriScience CDMO divisions, integrating them into Stelis Biopharma (OneSource).
The company is currently awaiting regulatory approval for these changes and plans to subsequently list on stock exchanges.
Outlook and valuation
New product launches in the US and cost optimisation measures will drive earnings ahead.
The outlook for the other regulated markets continues to remain robust, given strong order book visibility. Stelis is likely to benefit from both an improving balance sheet and a promising uptick in revenue.
However, in light of the recent rise in the prices and growing concerns on higher valuation, we downgrade our rating to “Accumulate” based on 36x FY26E EPS and a target price of Rs. 731.
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SEBI Registration Number: INH200000345
