Buy Stride Arcolab; target of Rs 506: KRChoksey

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Buy Stride Arcolab; target of Rs 506: KRChoksey

KRChoksey is bullish on Stride Arcolab and has recommended buy rating on the stock with a target of Rs 506 in its April 28, 2011 research report.

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RELATED NEWS Buy M&M Financial; target of Rs 942: LKP Buy Wipro; target of Rs 515: PINC Research Buy YES BANK; target of Rs 388: SKP Securities ALSO READ See previous views by KRChoksey See what other Experts & Brokerages are saying about Strides Arcolab See messages about Strides Arcolab Strides Arcolab BSE | NSE 31/05/12 Are Mutual Funds betting on Strides Arcolab?

KRChoksey is bullish on Stride Arcolab and has recommended buy rating on the stock with a target of Rs 506 in its April 28, 2011 research report.

"Strides are a leading pharmaceutical company operating mainly in two segments: specialities & pharma. It has total of 14 manufacturing plants with largest lyophilization capacities in the world. The company also has partnerships with leading global players such as Pfizer, GSK, Aspen, and Sandoz & Teva."

"Speciality segment (Hi-Po drugs, Antibiotics, Penems & Penicillins, Cephalosporin, suspension injections & oncology) contributed around 28% in CY09 which has increased to 39% in CY10. During Q1CY11, top-line grew by 30% to Rs 497cr on yo- y basis on the back of robust growth in specialty business (mainly Brazil business & licensing income) i.e. 93.5% y-o-y. The total filing under specialty business is around 113 & the company received 35 approvals till date commercializing only 10 of them. The overall injectables market stands at USD 200bn out of which US contributes 39%. This offers a huge opportunity as the market size is huge, low competition, & high margins. EBITDA margin maintained at 20.4% during the quarter against 19.6% in Q1CY10. PAT grew by 4.5% & 507% to Rs 45cr on y-o-y q-o-q basis respectively due to lower tax and higher other income during this quarter."

"Strides have collaborations with global companies like Pfizer & GSK for oncology products for both regulated as well as emerging markets. The company under collaboration would receive licensing fees & would share profits on commercialization. The GSK deal covers around 10 oncology injectable products & expandable to 45 products. This results in good amount of licensing income to be received by the company. The sterile facility at Bangalore got the USFDA approval which will drive the robust growth in sterile space. We are expecting the USFDA approval for its Oncology plant at Bangalore soon as it already inspected. Huge upside expected once the company gets the approval to it."

"We believe that higher focus on high margin specialty business, higher licensing income, marketing & supply agreements with global players would help the company monetize the benefits arising out of it. At CMP of Rs 397, the company is trading at PE of 10.6x to CY11E EPS of Rs 38 & PE of 7.9x to CY12E EPS of Rs 50.6. We maintain a positive outlook on the stock & recommend a BUY with a target price of Rs 506 (P/E of 10x of CY12E EPS of Rs 50.6) with potential upside of 27.5%," says KRChoksey research report.

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