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Macquarie raises TP on Solara Active Pharma by over 40%, says re-rating to continue

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The share price of Solara Active Pharma climbed up to 19 percent on Wednesday after Macquarie raised its target price to Rs 1,680 per piece.

Macquarie raises TP on Solara Active Pharma by over 40%, says re-rating to continue
The share price of Solara Active Pharma climbed up to 19 percent on Wednesday after Macquarie raised its target price to Rs 1,680 per piece and also initiated 'OUTPERFORM' on the stock. The stock rallied as much as 19 percent to Rs 1,248.70. It pared some gains to trade 12 percent higher to Rs 1,174 on the NSE, at 2:00 pm.
Solara is a top 3 pure-play Active Pharmaceutical Ingredient (API) manufacturer in India, stated Macquarie's report. The company was formed after the demerger of Strides Pharma and Sequent Scientific, and thus benefits from a legacy of three decades in API space, the report added. This makes it one of the strongest API players in the market today.
Macquarie noted that Solara's strategy of working with customers on a long-term basis (50-50 percent of contracts are long-term) rather than capitalising on short-term opportunities will lead to higher wallet share. Hence, it believes it's growth is more sustainable than its API peers.
Solara Active Pharma, API
Moreover, the company's major capex has already been done i.e. the commissioning of the Visakhapatnam facility. "We expect it to expand the share of launches done over the past few years. It intends to grow CRAMS (contract research and manufacturing) both organically and inorganically, which could garner 30 percent to sales in FY25E from 10 percent in FY20," said the brokerage.
Solara Active Pharma, API
As mentioned earlier, with major capex behind, expect Solara to report a strong cumulative free cash flow of Rs 2.2 billion over FY21-23E. Furthermore, it is the cheapest API stocks globally.
According to the report, it has a strong regulatory track-record and has the scope of a re-rating further ( stock up 195 percent in past one-year v/s Nifty's 4 percent). We believe the company is in it for a long haul.

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