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Buy Strides Pharma Science, target Rs 590: Motilal Oswal Securities

Buy Strides Pharma Science at a price target of Rs 590.

Last Updated: Jan 30, 2019, 02.09 PM IST
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The current market price of Strides Pharma Science is Rs 479.70.
Motilal Oswal Securities has a buy call on Strides Pharma Science with a target price of Rs 590.

The current market price of Strides Pharma Science is Rs 479.70.

Time period given by the brokerage is one year when Strides Pharma Science price can reach the defined target.

Investment rationale by the brokerage-
3QFY19 results operationally in-line: STR’s revenue grew 6 per cent YoY to Rs 7.9b (in-line) in 3QFY19, led by superior growth in the US and other regulated market. US revenue increased 6 per cent YoY to Rs 2.9b (USD41m; 37 per cent of sales), while other regulated market revenue was up 55 per cent YoY to Rs 1.3b (USD18m; 16 per cent of sales). Growth, however, was partly offset by a decline in Institutional revenue (-17 per cent YoY to Rs 871m, 11 per cent of sales). Africa business revenue, too, de-grew by 4 per cent YoY to Rs 600m (8 per cent of sales) for the quarter. Gross margin (GM) shrank 130bp YoY to 52 per cent (in-line). EBITDA margin, thus, contracted 150bp YoY to 16 per cent (our estimate: 15.5 per cent). Higher other expenses as per cent of sales (+120bp YoY) at 22.4 per cent was offset by reduced employee expenses (13.3 per cent v/s 15.7 per cent in 3QFY18). Adj. PAT of Rs 239m was lower than our estimate of Rs 333m due to lower other income and a higher tax rate. For 9MFY19, sales grew by 1 per cent YoY to Rs 21.9b, EBITDA increased 2 per cent YoY to Rs 3b, while PAT declined 74 per cent YoY to Rs 235m.

Valuation view: We raise our EPS estimate for FY19/20 by 2 per cent/6.4 per cent to factor in reduced interest outgo, and better profitability in other regulated market and the US. We also increase our SOTP-based target price to Rs 590 (from Rs 530). We remain positive on STR, led by its improved focus on the US market, reduced financial leverage and superior execution in other regulated market business. Maintain Buy.

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