Strides Pharma shares rally 10% to hit all-time high; DAM Capital sees room for re-rating

Shares of Strides Pharma Ltd. surged 10% to a record high of ₹1,025 on Monday, November 3, extending gains for the fourth consecutive session. The stock has rallied 26% in the past four trading days and is now up nearly sevenfold from its 2023 lows.

Trading volumes also spiked sharply, with around 23 lakh shares changing hands, compared with the 30-day average of 80,000 shares.

The Strides Pharma stock is now trading ex-OneSource, making it a pure-play generic pharmaceuticals business.

Brokerage firm DAM Capital maintained its 'Buy' rating on the stock with a price target of ₹1,250, implying a potential upside of 34% from current levels.

The brokerage said Strides' focus on profitability and cash generation over topline growth, driven by strong execution, differentiates it from other Indian generic peers and has created a solid foundation for sustainable growth.

According to DAM Capital, the company's investments in controlled substances, nasal sprays, and transdermal patches enhance its long-term growth visibility.

It expects operating cash flow (OCF) to scale up steadily, and with limited capital expenditure, Strides could generate free cash flow (FCF) of ₹1,300 crore between FY25 and FY27. This should enable a sharp reduction in leverage and potential cash returns to shareholders, it said.

The brokerage estimates revenue and EBITDA compound annual growth rates (CAGR) of 12% and 17%, respectively, between FY25 and FY27, led by the US and other regulated markets (ORM) segments. It projects return on equity (ROE) and adjusted return on capital employed (ROCE) at 19% and 20%, respectively, with further upside possible from new product launches.

Given its strong growth visibility and robust cash generation, DAM Capital believes Strides is attractively valued at 14 times estimated FY27 earnings per share, trading at a significant discount to other developed-market generics peers. The brokerage expects a potential re-rating as the company continues to execute its growth strategy.

In its latest September quarter results, Strides reported a net profit of ₹131.5 crore, up 82% year-on-year from ₹72.2 crore. Revenue rose 4.6% year-on-year to ₹1,221 crore, while EBITDA grew 25.4% to ₹232 crore.

The company's EBITDA margin expanded by over 300 basis points to 19%, and gross margin improved by 500 basis points to 57.8%.

Strides Pharma shares were trading 7.2% higher at ₹1,001.65, extending their year-to-date gains to over 40%.