Motilal Oswal is bullish on Strides Shasun has recommended Buy rating on the stock with a target price of Rs 1201 in its research report dated October 31, 2017.
Motilal Oswal's research report on Strides Shasun
Strides Shasun's (STR) 2QFY18 sales of INR10b were better than our estimate of INR8.9b. EBITDA margin of 13.2% missed our estimate of 14.5%. Adjusted PAT of INR253m too was lower than our estimate of INR439m. Regulated market and branded generics drive sales growth: Sales grew 4.4% YoY (+18.2% QoQ) to INR10b for the quarter. With a trough formed in 1QFY18, there has been increased business from the regulated market, and also from branded generics in the emerging market. Weak institutional business in the emerging market affected overall growth for the quarter. Sequential improvement in financial performance: Gross margin improved 120bp QoQ to 51.4% due to a superior product mix. In addition, higher operating leverage led to a sequential 280bp improvement in EBITDA margin. Accordingly, adjusted PAT improved from INR69m in 1QFY18 to INR253m in 2QFY18. EBITDA margin remained lower on a YoY basis. Lower other income and a higher tax rate led to a further YoY fall in PAT for 2QFY18. Valuation view: For FY18/19/20, we reduce sales estimates by 5.6%/4.7%/4.1% and PAT estimate by 12%/8.7%/8.9% to factor in a delay in key ANDA approvals, postponement of institutional anti-malaria tender business, and increased cost associated with marketing spend in the consumer healthcare segment. Accordingly, we revise our SOTP-based TP to INR1,201.
We continue to like STR due to its differentiated product pipeline for the US, consistent compliance track record, and better-than-industry growth in the Australia business and also the branded generics business in the emerging market. Maintain Buy.
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