Accumulate Stride Arcolab; target of Rs 451: Dolat Capital

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Accumulate Stride Arcolab; target of Rs 451: Dolat Capital

Dolat Capital is bullish on Stride Arcolab and has recommended accumulate rating on the stock with a target of Rs 451 in its October 25, 2011 research report.

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RELATED NEWS Buy L&T; target of Rs 1666: Motilal Oswal Buy KPIT Cummins; target of Rs 186: KRChoksey Buy Reliance Industries; target of Rs 1119: Emkay ALSO READ See previous views by Dolat Capital See what other Experts & Brokerages are saying about Strides Arcolab See messages about Strides Arcolab Strides Arcolab BSE | NSE 30/05/12 Are Mutual Funds betting on Strides Arcolab?

Dolat Capital is bullish on Stride Arcolab and has recommended accumulate rating on the stock with a target of Rs 451 in its October 25, 2011 research report.

"Strides Arcolabs' (STAR) topline grew 81% YoY to Rs  7.8bn, led by higherthan- expected licensing income in its pharma division. Increased contribution from Ascent Pharma (USD 45mn) aided topline growth. Topline excluding licensing income grew by 58.7% YoY to Rs  6.08bn. The specialty division sustained its growth momentum, with a 132% YoY figure, mainly on the back of a) new product launches and b) consolidation of its Brazilian operations. Of the 48 product approvals so far, the company has commercialised 25 (six launched this quarter). The rest will be launched by end CY11E. The non oncology facility will operate at optimum capacity by Q1 CY12E. The Brazilian JV operations contributed Rs  780mn during the quarter. However, it is unlikely to break even by CY11E due to a depreciating Brazilian Real and with new product launches being withheld. EBITDA margins stood lower by 100bps YoY at 19.6% due to higher other expenses (up 390bps YoY at 17.6% of sales). EBITDA of Rs  1.52bn includes forex loss of Rs  300mn."

"STAR also recorded extraordinary loss of Rs  293mn pertaining to forex dealings on restatement of long-term liabilities. Reported PAT (after EOI and minority interest) grew 34.4% YoY to Rs  465mn. The management has revised its topline guidance upwards from Rs  22bn to Rs  25bn due to increased licensing income in its pharma division. Licensing income is anticipated at Rs  4bn for CY11E against Rs  2.7bn guided earlier."

"STAR stands to benefit from the current drug shortages in the US as global players like Hospira experience manufacturing compliance issues. FDA approval to its Bangalore sterile and oncology facilities allows it to move the approved products (23 of them by end CY11E) towards commercialisation. We expect 40% earnings growth over CY10-12E. Increased contribution from steriles and concurrent receipts of licensing income (late stage pipeline) will partly lift concerns over a stretched balance sheet. Uptick in profitability from the pharma division aids overall growth. Further, with the capex cycle nearing the end, return ratios will observe an uptick. At CMP of Rs  388, the stock trades at 12.5xCY11E and 9.5xCY12E earnings. We recommend Accumulate on the stock with a revised target price of Rs  451 (11x CY12E earnings)," says Dolat Capital research report.

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