ICICI Securities: Strides Pharma - Stelis Turnaround To Provide Valuation Upside
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ICICI Securities Report
Strides Pharma Science Ltd. holds 48.7% equity stake in Stelis Biopharma Pvt. Ltd. on fully diluted basis and would invest additional 25 million U.S. dollar to make it a subsidiary in next nine to 12 months.
Currently Stelis Biopharma is loss making entity and negatively affects Strides Pharma’s profitability.
In FY20, the losses from joint venture and associates stood at Rs 1.1 billion, of which Stelis Biopharma accounted for approximately 70% of these losses while remaining pertained to consumer health business (CHC).
Management expects Stelis Biopharma to witness operational turnaround in FY22E which may provide 15-20% upside to Strides Pharma’s earnings.
We believe U.S. market (excluding Ranitidine) would grow 10.0% compound annual growth rate over FY20-FY23E while company’s consolidated Ebitda margin would sustain at 2021%.
Minimal capex requirement and healthy operational performance would help in generating free cash flow to the firm of approximately Rs 12 billion over FY21E-FY23E.
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