Moneycontrol Bureau
Shares in Strides Arcolabs gained 4.4 percent to Rs 766 in afternoon trade Thursday, after foreign brokerage Macquarie increased its price target on the stock from Rs 1,000 earlier to Rs 1,150.
The firm said Strides was its top small cap pick in the pharma space and recommended investors “aggressively buy” shares in the counter.
The target revision was driven by an upgrade in the target FY16 price-to-earnings (PE) multiple for the stock from 17 times expected earnings-per-share to 20 times – rather than by an increase in EPS expectation itself.
Macquarie’s conviction that the stock deserves higher PE valuation stems from increased comfort around potential earnings coming from Sovaldi, the Hepatitis C drug that US-based Gilead Sciences produces.
Strides is among six Indian firms licenced by Gilead to produce and sell cheaper version of the breakthrough drug Sovaldi in 91 developing nations.
About 100 million patients have been infected with the Hepatitis C virus in these developing countries, Macquarie said, adding that if 1 percent get treated with the drug over the next three years, it could mean market size of USD 1 billion.
“Strides could capture 15 percent of the market share, which would mean USD 40-50 milion additional yearly sales,” it added.
The Sovaldi launch, expected in the first quarter of FY16, could result in a potential earnings increase of 10-15 percent for Strides in FY17, according to Macquarie.
Strides notched up consolidated net profit of Rs 1,767 crore on sales of Rs 3,096 crore. Shares of the firm are up 112 percent this year, compared to the 46 percent gain logged by the CNX Pharma index.
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