Accumulate Strides Arcolab; target of Rs 715: Dolat Capital

Dolat Capital is bullish on Strides Arcolab and has recommended accumulate rating on the stock with a target of Rs 715 in its April 27, 2012 research report.

“Strides Arcolab’s Q1CY12 revenue (including 24 days of Ascent Pharma sales) grew 7.3% YoY to ` 5.34bn. However, the topline on a like-to-like basis grew 40% YoY to ` 4.95bn. Licensing income for the quarter stood at ` 640mn. Highlight of this growth was healthy performance in the specialty division driven by new product launches and benefit of operating leverage. Core revenue from the division (ex licensing income) more than doubled to ` 2.74bn with operating margins at 26%. The company has acquired an FDA approved sterile formulations facility to effectively capitalize on the US drug shortage opportunity. Its existing capacities (including non-oncology) are already tied up.”

“STAR stands to benefit from the current drug shortages in the US as global players like Hospira experience manufacturing compliance issues. A total of 31 products have been approved by the FDA and will be launched in CY12E which shall consequently accrue benefit of operating leverage. We expect 36% earnings growth over CY11-13E. Increased contribution from steriles, uptick in profitability from the pharma division and low debt gearing aids earnings growth.”

“Further, with the capex cycle nearing the end, return ratios will observe an uptick. At CMP of ` 645, the stock trades at 13.7xCY12E and 11.7xCY13E earnings. We recommend Accumulate on the stock with a revised target price of ` 715 (13x CY13E earnings),” says Dolat Capital research report.

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