Strides Arcolab: Recommendation Review

Strides Arcolab (SAL), which we had recommended in our Choice Scrip section in Dalal Street Investment Journal Vol. 27, Issue No. 18 (dated 26th August, 2012), has performed as per our expectations. The scrip is currently trading at a price of Rs 922, showing a robust 26 per cent gain from the recommended price.

The news of its plans to sell its specialty business segment, which is the main revenue contributor, has kept the stock in the limelight of late. We believe that any such action may put pressure on its share price. The company has denied any such action. However, it cannot be ignored that the company did sell its Australian business in 2011. For now, though, the investor sentiment is robust, which has sent its shares up by a massive 230 per cent in this calendar year alone.

SAL has a strong presence in more than 75 countries, with a total of 14 manufacturing facilities across the globe. The growth of the company is supported by its joint ventures and acquisitions. Aided by this, its revenues reported a five-year CAGR of 27 per cent and the net profit grew by 36 per cent. The EBITDA margins have also increased from 17 per cent in 2006 to 26 per cent in 2011.

The specialty segment is the main strength of its business. The company supplies its products to the overseas markets, mainly the US, where injectables have a robust demand. SAL is an established player in the injectables space, which is the main reason why its revenues and margins are showing handsome growth.

After our recommendation, SAL’s shares surged to Rs 868, which gave an opportunity to book profits in the counter on 5th September, 2012, with 19 per cent returns. Nevertheless, those who have not booked profits already are looking at an even better opportunity at a CMP Rs 922, which can give them a 26x return.