Solara Active Pharma Sciences - Pure Play API

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Solara came out with Q3’FY25 results and an important announcement to demerge CRAM business into a separate entity.

Investor presentation and press here is - here

Below is the summary from concall and artefacts -

  • Revenue guidance for FY25 reduced from 1,400 - 1,500 CR to 1,350 - 1,400 CR.

  • EBITA guidance for FY25 maintained between 230 - 260 CR.

  • Q3’25 gross margins at 56% which is the improvement of 500 basis points

  • Vizag Facility

  1. Total Capex - 500 Cr.
  2. Facility to be assigned for CRAM business ~ 300 Cr
  3. Rest of the facility to be retrofitted with about Rs. 100-125 Cr capex to be made useful for Non-Cram(Generics) business. Ibuprofen where there is a price pressure the infra for this product at Vizag facility will be retrofitted to produce another product. Detail announcement about this to come later
  • CRAMS Business
  1. Has not been growing as expected. Management wants to add focus and resources to this business. That is the reason for demerging it into a separate entity
  2. Demerger process typically takes 9-12 months
  3. Revenue for this business FY24 has been ~ Rs. 120 Cr with 25% ebita margin. Vision of the management is to achieve ~ Rs. 500 Cr revenue with 25-30 ebita for CRAMs business
  4. There will be 100-150 scientist hired for CRAM business. Current R&D is common between CRAM and Non-CRAM business
  5. Current Capacity of about 700 KL which can be easily doubled
  6. Rs. 200 Cr of debt transferred to balance sheet of the CRAM business entity
  7. Management want to have focused management bandwidth to this part of the business
  • Regulated market share in revenue about 76%. Management wants to continue to focus on upselling the high margin products in regulated/high value market
  • Company have close to 95 DMF whereas currently only 30 products are sold in the market. This provides the room for growth
  • For next 3-4 years perspective Revenue growth of low double digit is guided whereas focus to be remained on higher margins
  • For next 3-4 years perspective on Ebita margins management suggest to expect about 20% margin for next 5 odd quarters. Subsequent to that the Ebita margins can potentially improve to 22-23%
  • Even for the Non-Cram business, the focus is going to be on not letting the dilution of gross margins and management expect to not dilute gross margins more than 100-150 basis points due to demerger.
  • Management wants to focus on more free cash flow repaying the debt and making the company debt free

Stock trading at less than 2 times revenue. next 3-4 years look promising. Management’s strategy appears in the right direction. Lets hope for the best.

Disc-Invested

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