Strides: Re-building a strong business model

Merger with Shasun, Australian acquisitions to drive growth

 

Strides Shasun was in the news with its stock falling about eight per cent after reports suggesting fresh claims (compensation) sought by Mylan with respect to the US Food and Drug Administration raising concerns about a plant sold by Strides to the latter. However, the concerns are unwarranted as Strides has denied any such claims.

Even otherwise, analysts do not see any problems as Strides has also provided over $200 million (Rs 1,325.6 crore), which is kept in an escrow, towards potential claims. The stock has rebounded and closed at Rs 1,308 on Monday as Strides’ prospects remain strong.

Analysts at Religare say Strides had also given a corporate guarantee of $200 million to Mylan towards claims or liabilities before December 13, which could be invoked if the claim amount exceeds the escrow balance. However, they see a limited possibility of this happening and maintain positive stance on the stock.

 

On the business front, after the monetisation of its injectables business, which had seen a large part of its revenues and profits go off its books, the company has been doing well. It has been scaling its US business well looking at niche margin opportunities and receiving approvals for new launches.

The company’s acquisitions are positives. Its acquisition of Shasun, strengthening its US portfolio, provides synergy of operations and will boost margins. This acquisition has been completed recently, and will also boost the combined entity’s institutional business looking at anti-malarial portfolio of Shasun. The acquisition of Australian generic business along with certain branded pharmaceutical assets from Aspent Pharmacare a few months back will also be EPS (earnings per share) accretive from the first year.

For strengthening its domestic business, Strides has also entered into an agreement with Sun Pharmaceuticals to acquire the central nervous system (CNS) divisions ‘Solus’ and ‘Solus Care’ of Ranbaxy. The acquisition brings a chronic specialty segment along with specialised sales force under Strides’ control, thereby, complementing its strength in women’s health, CVS (cardio vascular system) and pain management areas.

Recently, Strides opened preferential issue of shares to qualified institutions at a floor price of Rs 1,344.78 apiece as part of its plans to lower debt and fund growth.

Overall, the company’s prospects are shaping up well. Analysts at India Infoline say Strides is well placed towards building scalable robust businesses across emerging and regulated markets. Shasun’s merger would provide backward integration, while the Australian acquisition paves the way for entry into a former market. Analysts expect strong revenue momentum, coupled with margin upsides, and have a target price of Rs 1,500 for the stock.