Home >Markets >Mark To Market >Solara Active Pharma’s Q4 was robust; stock amply factors in near-term positives

MUMBAI : Solara Active Pharma Sciences Ltd ended the financial year 2021 on a good note. For the March quarter (Q4FY21), the active pharmaceutical ingredient (API) provider saw 47% year-on-year (y-o-y) growth in its revenues to Rs444 crore. On a quarter-on-quarter (q-o-q) basis, revenues have increased by 4%.

Growth was primarily driven by the spectacular show in non-regulated markets revenues, which increased as much as 212% y-o-y. ICICI Securities Ltd’s analysts said, “Supplies from Vizag plant, which saw doubling of capacity utilization q-o-q to non-regulated markets was the key reason for this strong performance."

The company derived around 57% of its revenues from regulated markets, which saw revenues grow at a far slower rate of 5% y-o-y, driven by growing demand for the API products.

Overall, earnings before interest, tax, depreciation and amortization (Ebitda) margins contracted by 240 basis points vis-à-vis the December quarter to 22.3%. One basis point is one-hundredth of a percentage point. One reason for this is the compression in gross profit margins. “Company reported a decline of 430 basis points y-o-y (decline of 390 basis points q-o-q) in gross margin largely due to sharp jump in revenue from non-regulated markets which contributed about 43% to sales in Q4FY21 versus general trend of about 23-24%," point out analysts at ICICI Securities.

Commenting on the Ebitda margin, the broker said, “Improving sales, higher utilization and growing CRAMS business should all support margins in the future and we expect rise of 160 basis points to 25.5% over FY21-FY23E." CRAMS is short for contract research and manufacturing services.

To be sure, Solara’s shares have fared well on the bourses. So far this calendar year, the stock has increased around 43% versus the 10% gain in the Nifty 500 index. It helps that analysts are positive on growth, moving ahead. Analysts from Motilal Oswal Financial Services Ltd said in a report on 10 May, “With a focus on new launches, geographical expansion, augmented capacity from the new Vizag plant, better traction in base products and addition of ALS business, we expect 36%/ 42%/ 46% sales/ Ebitda / Profit after tax CAGR to around Rs2,980 crore/ Rs780 crore/ Rs470 crore over FY21–23." CAGR is compound annual growth rate.

Even so, the sharp appreciation in the share price suggests investors are capturing a good portion of the optimism into the valuations currently. On Tuesday, the stock hit a new 52-week high on the National Stock Exchange.

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