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Friday, January 8, 2010

Strides Arcolab Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outlook

Scripscan:Strides Arcolab Ltd

Story:The Rs 1,200-crore company is one of the leading integrated manufacturers of drug formulations with a focus on sterile injectables. While the company’s earnings have been erratic on account of MTM forex losses and foreign currency loans, its revenues have been increasing steadily over the past eight quarters.During the past few years, the company has exited from non-core businesses and acquired a clutch of niche players that enhanced its ability to introduce products worldwide. The company’s joint venture with South African pharma company Aspen Pharmacare Holdings has been critical to entering licensing and supply agreements with leading MNCs — GlaxoSmithKline (in July 2008) and now Pfizer. These agreements enable the company’s joint venture to earn fees on licensing the intellectual property of the products and also enter into exclusive supply contracts with the MNCs for those products.In case of the agreement with GSK, the company licensed 10 products to GSK to distribute in over 95 emerging markets. The current agreement with Pfizer entails licensing of 40 products, mainly from oncology therapy, to be distributed in the US market. In both these collaborations, the commercialised products are slated for launch during this year.While Strides Arcolab has not revealed the upside gains accruing from both these agreements, the company’s revenues and earnings are likely to witness a gradual improvement in the calendar year 2010 as more and more products under the agreements get commercialised. The earnings would receive an immediate boost on account of the receipt of licence fee payments in the first quarter of this year while revenues would start increasing once the company’s joint venture commences supplying contracts.The company’s stock is trading at a consolidated P/E of 13 and with a market cap of around Rs 950 crore — lower than the company’s consolidated net sales. Considering the upside,which will accrue to the company on account of these agreements, the current valuations appear lower. The company’s stock may witness another round of re-rating once the exact nature of earnings upside becomes clear.Looks good for 3-5 years investment horizon perspective.

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