Recommendation from Healthcare Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

STRIDES PHARMA SCIENCE : A TURNAROUND TOWARD PROFIT

HERE IS WHY
✓ State-of-the-art facilities in both India and abroad
✓ Revenue from the US at a historic high
✓ Anticipating growth in new markets like Africa and APAC

The Indian pharmaceutical sector plays a prominent role within the global pharmaceutical industry. India is one of the biggest suppliers of low-cost vaccines in the world. The market size of India’s pharmaceutical industry is expected to reach USD 130 billion by 2030 and USD 450 billion by 2047. The country is the largest provider of generic medicines globally, occupying 20 per cent share in global supply by volume. The growth of the Indian pharmaceutical industry has largely been supported by government initiatives. Considering the growth potential of this sector, our scrip recommendation for this issue is Strides Pharma Science Ltd.

Incorporated in 1990, Strides Pharma Science is engaged in the business of development and manufacturing of pharmaceutical products. The company has two business verticals, regulated markets and emerging markets. It has always followed an inorganic growth strategy over the years that has led to a foray into new markets and the addition of new business segments. The company has a dedicated research and development facility in India with global filing capabilities and a strong footprint across 100 countries.

It has state-of-the-art manufacturing facilities. In India, it is present in three cities – Chennai, Puducherry and Bengaluru – which are approved by the USFDA. The company also has operational facilities in Milan which is EUGMP-approved and another in New York. The company is also among the world’s largest soft gelatine capsule manufacturers. On the revenue front, 53 per cent of its revenue was derived North America, 22.7 per cent from Europe, 9.6 per cent from Africa, 9.2 from Australia and 5.5 per cent from rest of the world. Its revenue from the US was at a historic high of USD 75 million in Q2FY25, which grew at 26.2 per cent YoY and is poised to reach approximately USD 400 million by FY27-28. The management is expecting H2 to perform better than H1 as most of the scheduled launches are to fructify. In Q2FY25, on a consolidated basis, its net revenue rose by 20.18 per cent YoY to ₹1,201.11 crore compared to ₹999.43 crore from the previous year’s same quarter. On a sequential basis, the revenue increased by 10.45 per cent from ₹1,087.51 crore.

For Q2FY25, its PBIDT excluding other income increased by 53.99 per cent and stands at ₹235.81 crore from ₹153.13 crore in the previous year’s same quarter. The profit after tax (PAT) showed growth and stands at ₹106.47 crore from a net loss of ₹107.20 crore in the previous year’s same quarter. On a sequential basis, its net profit increased by 32.89 per cent from ₹80.12 crore. The net debt reduced to ₹1,902 crore with a net debt-toEBITDA ratio at 2.1 times, tracking ahead of guidance.

The company’s management is expecting to be net cash by 2027 after reducing debt from ₹3,000 crore to ₹1,500 crore over three years through operational efficiencies. Additionally, it is anticipating growth in new markets, particularly in Africa and APAC, with a focus on building a strong presence in these regions. Strides Pharma Science is currently trading at a PE of 31.7 times, lower than the industry PE of 36.9 times and a three-year median PE of 54.8 times, which looks attractive. Considering the company’s business and the potential for expansion, we recommend BUY.