Welcome to Sana Securities! Login | Subscribe Now.

Strides Shasun Equity Research

HomeCompanyStrides Shasun Equity Research

Date of Research – 11 January 2016

Price – Rs. 1,197.90

About the Company

Incorporated in 1990, Strides Shasun Limited (“Strides Shasun” or the “Company”) is an integrated manufacturer and exporter of finished pharmaceutical dosage forms for both branded and generic formulations. The Company manufactures a wide spectrum of pharmaceutical products, OTC products and nutraceuticals. The dosage form range includes tablets, capsules, soft gelatin capsules, parenterals and semi-solids. The Company also undertakes contract research and manufacturing of specialty chemicals. Strides has manufacturing operations in 14 global locations, 1 R&D facility in Bangalore and a marketing presence in 70 countries.

The Company is also among the world’s largest soft gelatin capsule manufacturers. Strides Shasun has partnership agreements with more than 10 of the top-50 global pharmaceutical majors across Australia, South Africa, the EU, and the USA. Some of Company’s partners include: Aspen Pharma, Johnson & Johnson, Novartis, Pfizer, UNICEF and World Health Organization.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2012 FY 2014 (15 Months) FY 2015 FY 2016 FY 2017
Total Income from Operations 2,307.33 1,340.96 1,195.85 3,156.35  3,483.42
Expenses 1,772.01 1,117.54 967.00 2,635.07   2,840.60  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 535.32 223.42 228.85 521.28   642.82  
Depreciation 109.48 56.48 64.03 157.28   187.15  
Finance Costs 193.44 108.88 47.44 180.31   226.93  
Other income 58.34 60.24 38.57 121.22   168.58  
Exceptional items (658.75) 26.55 7.38 37.09   100.58  
PBT 949.49 91.75 148.58 267.82   296.74  
Tax 102.14 324.54 147.60 71.55   46.99  
PAT (before Minority Interest and share of Associates) 847.34 (232.79) 0.98 196.27   445.60  
Profit/ (loss) attributable to Minority Interest 1.11 (0.01) (0.59) (12.66)  (0.36) 
Consolidated Profit / (Loss) for the year 846.24 (232.78) 1.56 208.93   445.96  

Profitability Analysis

Consolidated (%)
Particulars FY 2012 FY 2014 (15 Months) FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 23.20 16.66 19.14 16.52   18.45 
Net Profit Margin Ratio 36.68 (17.36) 0.08 6.22   12.79 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
Share Capital 58.38 58.80 59.57 59.62 89.35
Share Capital (Other than Equity) 2.76
Reserves & Surplus 1,310.34 1,967.44 947.26 1,085.31 2,773.84
Net worth (shareholders funds) 1,371.47 2,026.24 1,006.83 1,144.92 2,863.19
Minority Interest 46.46 71.85 75.67 18.71 42.80
Long term borrowings 1,938.80 731.15 275.52 267.39 2,745.48
Current liabilities 1,134.76 1,797.29 707.37 1,019.94 1,940.15
Other long term liabilities and provisions 953.3 142.26 29.24 35.15 31.38
Deferred Tax Liabilities 9.35 28.74 4.39 36.09
Total Liabilities 5,454.12 4,797.54 2,099.02 2,486.11 7,659.09

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
Fixed Assets 1,557.38 1,567.85 550.60 735.69 3,447.75
Noncurrent Investments 41.80 68.76 96.38
Current assets 1,437.79 1,410.94 1,308.63 1,429.45 3,594.90
Long term advances and other noncurrent assets 454.33 126.88 91.85 109.99 322.17
Deferred Tax Assets 22.03 1.56 2.74 5.39 21.12
Goodwill on consolidation (net) 1,982.59 1,690.31 103.40 136.84 176.77
Total assets 5,454.12 4,797.54 2,099.02 2,486.11 7,659.09

Efficiency Analysis

  (%)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
ROCE 16.13 18.92 16.45 15.99 9.22
ROE / RONW 62.12 41.76 (23.12) 0.14 6.85

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2012 FY 2014 (15 Months) FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 2,307.33 1,340.96 1,195.85 3,156.35 3,483.42
Growth (%) (10.46 %) (41.88 %) (10.82 %) 163.94 %  10.36 % 
PAT (Rs. Cr.) 846.24 (232.79) 0.98 196.27  445.60  
Growth (%) 276.98% (127.51 %) 100.42 %  19927.24 %  127.03 % 
Earnings Per Share – Basic (Rs. ) 144.30 (39.34) 0.26 25.30  44.73 
Earning Per Share – Diluted (Rs. ) 131.85 (39.34) 0.26 25.14  44.64 
Price to Earnings 4.10 4504.42 43.30  20.11 

Dividend History

The Company has maintained an average dividend yield of 14.92 % over the last 5 financial years. 

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Strides Shasun’s average current ratio over the last 5 financial years has been 1.36 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Strides Shasun’s average long term debt to equity ratio over the last 5 financial years has been 0.62 which indicate that the Company is operating with a low level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Strides Shasun’s average interest coverage ratio over the last 5 financial years has been 3.01 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Strides Shasun reported a promoter holding of 31.09 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 39.30 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

Leave a Comment