Buy Strides Pharma Science; target of Rs 421: ICICI Securities

ICICI Securities is bullish on Strides Pharma Science has recommended buy rating on the stock with a target price of Rs 421 in its research report dated May 21, 2020.

ICICI Securities research report on Strides Pharma Science

Strides Pharma Science’s (Strides) Q4FY20 performance was impacted by withdrawal of Ranitidine from US market as instructed by USFDA. However, adjusted performance was higher than estimated which clearly demonstrates strong execution. Reported revenue grew 0.4% YoY to Rs6.2bn and EBITDA margin dropped 150bps YoY to 13.5% after removing gross profit contribution from Ranitidine. However, adjusted EBITDA margin was 24.9% vs estimated 22.5%. Other markets (EU, EM and institutional) reported strong performance. We believe US market (ex-Ranitidine) is would grow 17.2% CAGR over FY20-22 and company’s consolidated EBITDA margin would sustain above 20%. Minimal capex requirement and healthy operational performance would help in generating FCFF of ~RS6bn over FY20-22. Retain BUY.

Outlook

We largely maintain our estimates but raise target P/E(x) to 14x from 12x due to reduced product concentration risk and de-leveraging by the company. We maintain BUY rating with a revised target price of Rs488/share based on 14xFY22E EPS (earlier: Rs420/share). Key downside risks: Regulatory hurdles and pricing pressures in the US.

For all recommendations report, click here

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