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Strides Up 12% on FDA Approval, Portfolio Gains

Deepak Shenoy3 min read
Quick Facts
What is "Strides Up 12% on FDA Approval, Portfolio Gains" about?
What category is this article in?
Premium
Who wrote this article?
Deepak Shenoy, Capitalmind's research team.
When was this article published?
Published 28 April 2014.
How long does this article take to read?
3 min read
What topics does this article cover?
Pharmaceuticals
What does the "Would we buy now?" section say?
What if you’re missed the bus? Is Strides a buy now? At this point, the trigger and concern is really the $250 million payment. That would propel the stock further up, when it happens; and if it doesn’t happen, the stock will fall equally badly.
What does the "Capital Mind Portfolio" section say?
We’ve done reasonably well, up 21% overall. The problem children are KPIT and Phoenix Lamps. We aren't likely to add more than three more stocks.
What does the "Annual Report Gotchas: Webinar, Saturday, 11 AM" section say?
Don’t miss our webinar at 11 AM today on Annual Report Gotchas.
What does the "Disclaimer" section say?
Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion.

This is a Capital Mind Premium post, sent on April 26, 2014.

Strides Arcolab has seen a surge in its stock price on news that the FDA continues its approvalfor Strides’ Bangalore oral dosage facility. It has gone up 12 to Rs. 526.

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Note: Ignore the fall (it’s the dividend adjustment).

We have purchased Strides in the Capital Mind Premium portfolio in December, after our post that it was offering a Rs. 500 dividend after it’s $1.75 billion sale of it’s Agila division to Mylan Pharmaceuticals. We bought the stock at about Rs. 892 (which is 392 plus Rs. 500 dividend) and reinvested the Rs. 500 dividend for an average price of Rs. 382.

Note: There are two corrections to that post. One, that the purchase price was $1.85 billion ($1.6 immediately, $0.25 bn later). Second, that we mentioned that the company’s subsidiary was Sequent. That is incorrect - Sequent is not owned by Strides, but by the promoters of Strides in their individual capacity.

The stock went up 12% to Rs. 526 on Friday. However, it had already gone up 30% from our purchase price by then.

The theory is that

  • Mylan attached certain conditions for releasing $250 million out of the sale amount

  • Those conditions were based on an FDA warning on the Agila injectibles division in Bangalore, according to their press release.

The current FDA approval is for a completely different plant, for an oral dosage facility. It is not a certification of the facility the FDA warned about. It is a little premature to assume that the FDA approval means everything’s fine, or that the $250 million will be released.

But it does underscore the viability of the remaining business of Strides. Basically, if you assume the $250 million comes in, the remaining business of Strides was available in December for Rs. 192. That continues to seem like a reasonable price.

Would we buy now?

What if you’re missed the bus? Is Strides a buy now? At this point, the trigger and concern is really the $250 million payment. That would propel the stock further up, when it happens; and if it doesn’t happen, the stock will fall equally badly.

We wouldn’t buy any more basically because we’ve reached our allocation on the stock. However, if we didn’t own any of the stock today, we would use an all time high as a trigger and buy at Rs. 550, on the basis of momentum.

Capital Mind Portfolio

We’ve done reasonably well, up 21% overall. The problem children are KPIT and Phoenix Lamps. We aren’t likely to add more than three more stocks.

Annual Report Gotchas: Webinar, Saturday, 11 AM

Don’t miss our webinar at 11 AM today on Annual Report Gotchas.

Click here to go to the webinar.

Disclosure: Long the stock.

Disclaimer

Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion.

Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.

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Tagged:Pharmaceuticals