Strides Pharma Science (Strides) holds 48.7% equity stake in Stelis Pharma on fully diluted basis and would invest additional US$25mn to make it a subsidiary in next 9-12 months. Currently Stelis is loss making entity and negatively affects Strides’ profitability. In FY20, the losses from JV & Associates stood at Rs1.1bn, of which Stelis accounted for ~70% of these losses while remaining pertained to consumer health business (CHC). Management expects Stelis to witness operational turnaround in FY22E which may provide 15-20% upside to Strides’ earnings.


Outlook


We believe US market (ex-Ranitidine) would grow 10.0% CAGR over FY20-FY23E while company’s consolidated EBITDA margin would sustain at 20- 21%. Minimal capex requirement and healthy operational performance would help in generating FCFF of ~Rs12bn over FY21E-FY23E. Retain BUY.