Strides Arcolab top small-cap pharma pick: Macquarie Securities

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Published: May 28, 2015 12:09:28 AM

We present key takeaways from the analyst meeting hosted by Strides Arcolab (STR) on the back of its Australian business acquisition...

We present key takeaways from the analyst meeting hosted by Strides Arcolab (STR) on the back of its Australian business acquisition and FY15 annual results. Annualising Q4FY15 Ebitda combined with upside from Shasun and the  Australia business acquisition already explains 75% of our FY17e  consolidated sales & Ebitda estimate. We maintain outperform with target price of R1,700.

We expect STR to deliver robust growth in a market driven by a strong & experienced management   team , coupled with rich  portfolio (149 launched products with strong pipeline of 51), large field force  (similar to top-2 players in the market) and cost synergies from the transfer of  manufacturing to India.

Management clarified that the large part of mandated PBS price cuts will be absorbed by the pharmacists. Pricing and margin of generic players will not  get directly impacted due to this.Though near-term growth will get impacted due to price cuts in the system and one-time set-up cost for STR, we believe  a strong pipeline coupled with the transfer of product manufacturing to the  TGA-approved facility in India will help deliver growth & significant cost  synergies for Strides in the Australian market.

STR is our top small cap pick in Indian pharma space. Valuations look attractive.  We would recommend buying aggressively at current levels.

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