Buy Strides Arcolab around Rs 850, says SP Tulsian

Tulsian told CNBC-TV18, “I am unable to understand this carnage in the stock because if USD 1.6 billion dollar deal and the USD 250 million extra, which is likely to get received by the Strides Arcolab if they comply and even if you take 1.6 the deal has happened at an EBITDA of 17 plus maybe 16.8 times and if you see on the topline maybe the turnover to the deal consideration taking 1.6 billion at 6.3x.”

He further added, “I do not understand where undervaluation is or what was the expectation, only problem because market has started expecting that probably the company will be receiving USD 2 billion and they are in negotiation with Pfizer. So, even if presume, if I take an optimistic view I presume that USD 250 million will get received by Strides because they will be making all the efforts to receive that by discharging their obligation for what has been stated in the contract. So, USD 1.8 billion is not a less amount because the company has the largest USD approval for the injectable.”

“So, taking all this into consideration sometimes I do not understand that what is the reason for such a fall and the management has indicated that about half the amount will be used by the company for paying the dividend, which has not been done by its predecessors like Primal Enterprise and all that. So, I am unable to understand the reason and about 2/3rd to 70 percent of the total company’s topline, bottomline was coming in from Agila. I am quite convinced and happy with the structure of the deal including the consideration but unable to understand the reason.”

“I see this as a fair value because if you take USD 1.6 billion, EBITDA of 16.8 times is not less and if you add USD 1.85 billion then that valuation will rise to about 20x plus. So, maybe I will advise buying but generally when you see the major portion of the one business vertical going out. Sometimes the stock becomes dull and boring. So, that maybe the reason but still once the company takes up the declaration of the dividend, which maybe as high as Rs 350-400 per share then we may see the interest coming back into the stock. So, I will advice buying at a level of Rs 850 or so for a level of Rs 950-960 or closer to Rs 1,000.”