Buy Shilpa Medicare; target of Rs 686: Motilal Oswal

Motilal Oswal's research report on Shilpa Medicare

Shilpa Medicare (SLPA) recently decided to end its joint venture (JV) with ICE S.P.A Italy (ICE) – a move that would help it garner proceeds of INR1.3b, as against its investment of INR800m toward the JV. Furthermore, the amount of annual business with ICE via CRAMS may be reduced by ~INR500m. The decision was premised on the increasing uncertainty over the profitability of the JV. Accordingly, for FY19/FY20, we reduce our (i) sales estimate by 5% to INR10b/INR12b and (ii) earnings estimate by 8.5% to INR2.1b/INR2.7b. Consequently, our price target is lowered to INR686 (25x 12M forward earnings).

Outlook

The company has a healthy oncology portfolio, with 31 ANDAs pending for approval. In our view, approvals and subsequent launches would be the key growth drivers for SLPA over the next 2-3 years. We expect a CAGR (FY17-20) of 14% in sales to INR12b and 30% in PAT to INR2.5b. Re-iterate Buy. For all recommendations report, click here

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