Hold Strides Pharma Science; target of Rs 600: Sharekhan

Sharekhan's research report on Strides Pharma Science

Strides Pharma (Strides) board has approved to demerge soft gelatin CDMO business from Strides Pharma into Onesource with a swap ratio of 1:2, where Strides shareholders to receive one share of OneSource for every two shares of Strides. Soft gelatin business is demerged from Strides at 17x EV/EBITDA. Strides shareholders to participate in value discovery by holding 44% in OneSource (implied value INR 364/share of Strides). The shareholders of Strides Pharma are expected to benefit as CDMO business is a high entry barrier business with strong growth prospects, while the standalone business is on the verge of a turnaround with a gradual recovery in profitability driven by a better product mix.

Outlook

The stock has rallied 20% in the past month, factoring the positives around the demerger. Hence, we maintain a hold on the stock with a revised SOTP-based price target of Rs 600 per share. The stock currently trades at 17.8x/ 11.9x its FY24E and FY25E earnings.