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Buy Strides Arcolab – Kotak

November 21, 2007

Kotak has initiated coverage on Strides Arcolab Ltd with a BUY rating after the some big ticket foreign deals.

Aspen will become a strategic, equal and regional partner in Strides’ Latin American operation. The transaction values the Latin American operations of Strides at over US$260 mn. Aspen will be a global partner for the development and global marketing of oncolytics.

Strides will acquire 51% interest of Co Pharma Ltd, Aspen’s UK based generics subsidiary, for Rs.230 mn. Strides will acquire 80% of Formula Naturelle (Pty) Ltd, a wholly owned subsidiary of Aspen, for Rs.197 mn (35 mn rand), which will own a basket of neutraceutical products currently marketed by Aspen in South Africa.

All these transactions will result in a net outflow of Rs 3.0 billion to the company. Strides is expected to report a fully diluted EPS of Rs 21.1. The stock is available at 13.9x FY08 earnings. Kotak recommends a BUY with DCF-based one-year target price of Rs.400.

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