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Strides Arcolab- Oncology facility approval key trigger…
Strides Arcolab’s Q1CY11 results were a mixed bag. Revenues increased
30% YoY to | 497.3 crore, much above our expectation of | 450 crore on
account of higher licensing income (| 112.1 crore against our
expectation of | 60 crore). However, EBITDA margins declined 210 bps
YoY to 20.4% as against our expectation of 22.5% due to consolidation
of the Brazilian JV and planned shutdown of the USFDA approved
existing sterile manufacturing facility for seven weeks. EBITDA grew
18% to | 101.5 crore (in line with our expectation). Due to higher
interest cost and tax provision, net profit growth was restricted to 2%
at | 40.7 crore (our expectation: | 39.4 crore). Strides received approval
for a new sterile manufacturing facility recently. We expect Strides to
commercialise almost all approved products during the current year. We
have upgraded our target price with HOLD rating.
�� Specialties sales up 93% YoY
The specialties business witnessed robust growth of 93% YoY to | 237.4
crore mainly driven by the consolidation of the Brazilian JV and higher
licensing income. The Brazilian JV is currently making losses and we
believe it will break even at the fag end of the current year.
�� Getting approval for oncology facility to be key trigger
Going ahead, getting approval for the oncology facility will be the key
trigger. So far, it has filed around 36 ANDAs from this facility. The
approval for this facility will start supplies to Pfizer in the US market.
Valuation
Strides is currently trading at ~12x CY11E EPS of | 31.9 and ~8x CY12E
EPS of | 47.4. Recently, it received approval for a new sterile facility from
the USFDA after getting approvals for two specific products. We expect
Strides to transfer all the approved products to the new facility in a couple
of months and launch almost all approved products in the current fiscal.
We believe approval for the oncology facility now holds the key for a
multiple upgrading. We have valued the stock at | 426 based on 9x CY12E
EPS of | 47.4 with a HOLD rating. We had recommended 50% profit
booking after achieving the earlier target price of | 393.
Revenues up 30% on robust growth in specialties business
Strides Arcolab’s revenues increased by 30% YoY to | 497.3 crore, which
was above our expectation of | 450 crore due to higher licensing income.
The licensing income was | 112.1 crore (our expectation: | 60 crore) as
against | 83.4 crore in the corresponding quarter. Excluding the licensing
income, the base business witnessed growth of 29% YoY in line with our
expectation.
The specialties business witnessed robust growth of 93% YoY to | 237.4
crore mainly driven by consolidation of the Brazilian JV and higher
licensing income. Broadly, Brazilian operations are classified into
manufacturing and trading. The manufacturing and trading business
witnessed sales of | 20 crore and | 40 crore during the quarter,
respectively. The trading business is yet to break even and is expected to
start contribution by the end of the current calendar year. The pharma
business witnessed muted growth of 1% to | 260.7 crore due to deferred
institutional sales. The business is expected to normalise from the current
quarter. Ascent Pharma (Australian subsidiary) registered sales of US$38
million, an increase of 47% YoY.
EBITDA margins decline by 210 bps YoY
EBITDA margins for the quarter declined 210 bps YoY to 20.4% (as
against our expectation of 22.5%). The fall in margins was mainly due to
(i) consolidation of the Brazilian JV, which is making losses as majority of
the sales come from the tender business and (ii) planned shutdown of the
USFDA approved old manufacturing facility for seven weeks. Strides shut
down its USFDA approved sterile facility for regular maintenance. EBITDA
increased by 18.2% to | 101.5 crore in line with our expectation of | 101.2
crore.
Recently, Strides has received USFDA approval for its new sterile
manufacturing facility. So far, in the sterile business, it has received
approval for 35 products (including one tentative approval) from USFDA
but commercialised only10 products due to capacity constraints. As the
new sterile facility has recently been approved, it is in the process of filing
site transfer for a new facility. We believe Strides will commercialise the
remaining 24 products in the current year in the US market. Going ahead,
we expect EBITDA margins to improve on account of higher capacity
utilisation.
Net profit growth restricted to 2% due to higher interest and taxation
Despite 18% growth at the EBITDA level, the net profit increased by only
2% to | 40.7 crore in line with our expectation of | 39.4 crore due to
higher interest cost and tax provision. Interest costs rose by 69% YoY to |
43.8 crore but on a sequential basis fell by 3%. Debt on the books, as on
March 31, 2011, was around | 2100 crore. The company is planning to
repay higher cost debt by raising new low cost debt in the coming
months.
Other key points
• Capex for the current fiscal would be US$10 million
• Strides is planning to file 35 ANDAs in the current fiscal. Of this,
30 ANDAs will be in specialties and five in the pharma space
• The market share of Vancomycin Hydrochloride injection
increased from 15% to 25%. It expects USFDA approval for one
more strength of the same, which has annual sales of US$40
million
• It has received approval for cancer drug Carboplatin from the
European Directorate for Quality Management (EDQM). The
company has started the product registration process in all 27 EU
markets. It expects to launch the product in at least 20 markets by
the end of 2011
Valuation
Recently, Strides has received approval for a new sterile facility from the
USFDA after getting approvals for two specific products. We believe
Strides will transfer all the approved products to the new facility in a
couple of months and launch all approved products in the current fiscal.
Apart from these, we also expect USFDA approval for both the oncology
facility and at least a couple of products in the current year. Supplies to
GSK would start in Q2CY11. In the pharma business, we see a gradual
defocus on the institutional business and good traction from Australasia,
Africa and India.
Strides is currently trading at ~12x CY11E EPS of | 31.9 and ~8x CY12E
EPS of | 47.4. We believe approval for the oncology facility now holds the
key for multiple upgrading. We have valued the stock at | 426 based on
9x CY12E EPS of | 47.4 with a HOLD rating. We had recommended 50%
profit booking after achieving the earlier target price of | 393.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strides Arcolab- Oncology facility approval key trigger…
Strides Arcolab’s Q1CY11 results were a mixed bag. Revenues increased
30% YoY to | 497.3 crore, much above our expectation of | 450 crore on
account of higher licensing income (| 112.1 crore against our
expectation of | 60 crore). However, EBITDA margins declined 210 bps
YoY to 20.4% as against our expectation of 22.5% due to consolidation
of the Brazilian JV and planned shutdown of the USFDA approved
existing sterile manufacturing facility for seven weeks. EBITDA grew
18% to | 101.5 crore (in line with our expectation). Due to higher
interest cost and tax provision, net profit growth was restricted to 2%
at | 40.7 crore (our expectation: | 39.4 crore). Strides received approval
for a new sterile manufacturing facility recently. We expect Strides to
commercialise almost all approved products during the current year. We
have upgraded our target price with HOLD rating.
�� Specialties sales up 93% YoY
The specialties business witnessed robust growth of 93% YoY to | 237.4
crore mainly driven by the consolidation of the Brazilian JV and higher
licensing income. The Brazilian JV is currently making losses and we
believe it will break even at the fag end of the current year.
�� Getting approval for oncology facility to be key trigger
Going ahead, getting approval for the oncology facility will be the key
trigger. So far, it has filed around 36 ANDAs from this facility. The
approval for this facility will start supplies to Pfizer in the US market.
Valuation
Strides is currently trading at ~12x CY11E EPS of | 31.9 and ~8x CY12E
EPS of | 47.4. Recently, it received approval for a new sterile facility from
the USFDA after getting approvals for two specific products. We expect
Strides to transfer all the approved products to the new facility in a couple
of months and launch almost all approved products in the current fiscal.
We believe approval for the oncology facility now holds the key for a
multiple upgrading. We have valued the stock at | 426 based on 9x CY12E
EPS of | 47.4 with a HOLD rating. We had recommended 50% profit
booking after achieving the earlier target price of | 393.
Revenues up 30% on robust growth in specialties business
Strides Arcolab’s revenues increased by 30% YoY to | 497.3 crore, which
was above our expectation of | 450 crore due to higher licensing income.
The licensing income was | 112.1 crore (our expectation: | 60 crore) as
against | 83.4 crore in the corresponding quarter. Excluding the licensing
income, the base business witnessed growth of 29% YoY in line with our
expectation.
The specialties business witnessed robust growth of 93% YoY to | 237.4
crore mainly driven by consolidation of the Brazilian JV and higher
licensing income. Broadly, Brazilian operations are classified into
manufacturing and trading. The manufacturing and trading business
witnessed sales of | 20 crore and | 40 crore during the quarter,
respectively. The trading business is yet to break even and is expected to
start contribution by the end of the current calendar year. The pharma
business witnessed muted growth of 1% to | 260.7 crore due to deferred
institutional sales. The business is expected to normalise from the current
quarter. Ascent Pharma (Australian subsidiary) registered sales of US$38
million, an increase of 47% YoY.
EBITDA margins decline by 210 bps YoY
EBITDA margins for the quarter declined 210 bps YoY to 20.4% (as
against our expectation of 22.5%). The fall in margins was mainly due to
(i) consolidation of the Brazilian JV, which is making losses as majority of
the sales come from the tender business and (ii) planned shutdown of the
USFDA approved old manufacturing facility for seven weeks. Strides shut
down its USFDA approved sterile facility for regular maintenance. EBITDA
increased by 18.2% to | 101.5 crore in line with our expectation of | 101.2
crore.
Recently, Strides has received USFDA approval for its new sterile
manufacturing facility. So far, in the sterile business, it has received
approval for 35 products (including one tentative approval) from USFDA
but commercialised only10 products due to capacity constraints. As the
new sterile facility has recently been approved, it is in the process of filing
site transfer for a new facility. We believe Strides will commercialise the
remaining 24 products in the current year in the US market. Going ahead,
we expect EBITDA margins to improve on account of higher capacity
utilisation.
Net profit growth restricted to 2% due to higher interest and taxation
Despite 18% growth at the EBITDA level, the net profit increased by only
2% to | 40.7 crore in line with our expectation of | 39.4 crore due to
higher interest cost and tax provision. Interest costs rose by 69% YoY to |
43.8 crore but on a sequential basis fell by 3%. Debt on the books, as on
March 31, 2011, was around | 2100 crore. The company is planning to
repay higher cost debt by raising new low cost debt in the coming
months.
Other key points
• Capex for the current fiscal would be US$10 million
• Strides is planning to file 35 ANDAs in the current fiscal. Of this,
30 ANDAs will be in specialties and five in the pharma space
• The market share of Vancomycin Hydrochloride injection
increased from 15% to 25%. It expects USFDA approval for one
more strength of the same, which has annual sales of US$40
million
• It has received approval for cancer drug Carboplatin from the
European Directorate for Quality Management (EDQM). The
company has started the product registration process in all 27 EU
markets. It expects to launch the product in at least 20 markets by
the end of 2011
Valuation
Recently, Strides has received approval for a new sterile facility from the
USFDA after getting approvals for two specific products. We believe
Strides will transfer all the approved products to the new facility in a
couple of months and launch all approved products in the current fiscal.
Apart from these, we also expect USFDA approval for both the oncology
facility and at least a couple of products in the current year. Supplies to
GSK would start in Q2CY11. In the pharma business, we see a gradual
defocus on the institutional business and good traction from Australasia,
Africa and India.
Strides is currently trading at ~12x CY11E EPS of | 31.9 and ~8x CY12E
EPS of | 47.4. We believe approval for the oncology facility now holds the
key for multiple upgrading. We have valued the stock at | 426 based on
9x CY12E EPS of | 47.4 with a HOLD rating. We had recommended 50%
profit booking after achieving the earlier target price of | 393.
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