Strides Arcolab (STR) continues to strengthen its business model and is now set to become one of the top three generic players in Australia with its proposed acquisition of Aspen’s generic portfolio. Our pro-forma analysis suggests that the deal will add 12%/15% to FY16/FY17 earnings, further boosting the strong 52% EPS CAGR over FY15-FY17E. We continue to like STR for its robust business model (post Shasun integration) and remain positive on the stock. Maintain buy with a target price of R1,355.
STR is set to acquire Aspen’s generic business (Arrow Pharmaceuticals) and some of its branded pharma assets (total portfolio: 130 products) for AUD 265 million ($208 million). With the acquired portfolio clocking revenues/EBITDA of $83 million/$20 million (as of June’14), the implied transaction value is 2.5x EV/sales and 10.4x EV/EBITDA. STR will also acquire six more brands (revenue/ EBITDA: $12 million/10 million) for $92 million or at 7.7x EV/sales and 9.2x EV/EBITDA. The deal, expected to close by Q2FY16, is reasonably valued given that STR had sold its Australasia generics business to Watson in January 12 for $393 million at 4.3x EV/sales and 22x EV/EBITDA (Mayne-Hospira deal valued at 16x EV/EBITDA).
With no change in leadership, a legacy portfolio and STR’s own knowledge/market experience, we believe the company should be able to successfully integrate Aspen’s operations with itself.
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