Buy Strides Arcolab; target of Rs 1007: ICICIdirect.com

ICICIdirect.com is bullish on Strides Arcolab and has recommended buy rating on the stock with a target of Rs 1007 in its October 22, 2012 research report.

“Strides Arcolab’s Q3CY12 results were inline with our expectations. Revenues increased by 8% QoQ to Rs 596.2 crore (inline with our estimates of Rs 596 crore). Licensing income during the quarter stood at Rs 115 crore as against our expectation of Rs 60 crore. Lower than expected sales in the Pharma segment in fact kept the overall performance in check. EBITDA margins improved by 110 bps QoQ to 25% on the back of higher licensing income. EBITDA in absolute terms grew by 2% QoQ to |149.3 crore. The company booked forex loss of Rs 13 crore at the EBITDA level during the quarter. It registered net profit of | 52.5 crore, lower than our expectation of | 65 crore on account of higher taxation. Despite these variations, we believe the company has achieved the required critical mass by transforming into a full-fledged matured generic player with required capacities and capabilities.”

“In Q3 itself the company filed as many as 28 ANDAs in the sterile space taking total ANDAs filings as on 30 September 2012 to 189. It launched 7 products in the US during the quarter including Day one launch of oncology drug Oxaliplatin. Despite some structural issues in the Brazilian market, overall Agila performance was strong as always. The Brazilian operations were impacted by 1) ANVISA strike and 2) delay in product approval for Penems by the USFDA. During the quarter the company received USFDA approvals for the STAR facility in Bangalore and Polish facility.”

With 232 ANDA filings (~80% in the sterile space), well thought out strategy to focus on shortage products in the US and also in the oncology space, Lighter balance sheet on the back of better than expected cashflows from Ascent deal and ability to consistently beat the growth guidance, we see even greater visibility than projected earlier. We have upgraded the multiple from 12x to 15x, our 2nd revision in 12 months after we first revised it from 9x to 12x at the time of Ascent sale. Our revised target price is Rs 1007, based on 15x CY12E. We recommend buy,” says ICICIdirect.com research report.

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