Buy Strides Arcolab with revised target of Rs.437 - Motilal Oswal

Strides Arcolab (STR IN; Mkt Cap USD0.4b, CMP Rs324, Buy)

Strides Arcolab's 4QCY10 net sales grew 15.8% YoY to Rs4.56b, EBITDA grew 9%YoY to Rs772m while the company reported loss of Rs30m.

Topline growth was led by specialty segment which reported 2x growth in revenue to Rs2.2b (vs estimate of Rs2.1b) albeit on a small base.

However, Pharma segment reported decline of 16.8%YoY to Rs2.36b due to poor performance in Indian branded business and decline in pharma manufacturing

EBITDA grew by 9%YoY to Rs772m while EBITDA margins declined by 100bp YoY to 17%. EBITDA margins were better than estimates.

The company has an impressive product pipeline in the specialty segment with 33 product approvals and 90 ANDAs awaiting approvals. We expect Strides to clock earnings CAGR of 31% over CY10-12. Gearing will decline from 2x in CY10 to 1.4x in CY12. Based on our revised estimates, the stock trades at 9.7x CY11E and 8.9x CY12E earnings. We maintain Buy with revised price target of Rs437 (12x CY12E EPS), an upside of 35%.

Source : Equity Bulls

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