Strides Arcolab Ltd: Initiating Coverage Research Report By Edelweiss

Outlook & Valuation: Strides Arcolab (STAR) has metamorphosised from a predominantly injectable-focused company into a niche pharmaceutical generic player. With an unequivocal strategy to deepen its branded generic presence in the lucrative African market, turn the tap off unremunerative operations (anti-TB drugs) and not sacrifice profitability in pursuit of market share in the institutional segment, the company’s profitability has catapulted substantially from low double digits to 20% plus currently. Moreover, merger of Shasun Pharmaceuticals (Shasun) has accorded STAR a vertically integrated conglomerate status, which will enable it to pare sourcing costs meaningully, besides giving it access to the former’s fomidable products pipeline in the US market. Improving contribution of the high margin African branded business, uptick in the domestic branded market via Bafna Pharmaceutical’s domestic portfolio acquisition along with incremental benefits from vertical integration amply equip the company to garner higher profitability and imparts commendable growth visibility going forward.

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