Religare Research has maintained 'Buy' on Strides Arcolab (STR) with revised target price of Rs 1,515 in its report.

Commenting on the investment rationale, the stock broker said,  STR's Q4FY15 earnings were broadly in line with expectations, adjusting for unrealised interest income and merger expenses. While the base business continues to deliver strong growth, we believe Shasun's merger (which fills in key portfolio gaps) and integration of the Arrow portfolio (establishes presence in Australia) will strengthen STR's business model significantly. Management highlighted that PBS (Pharmaceuticals benefit scheme) price cuts in Australia (latest round of cuts in Apr'15 of ~18.6% for the industry) is unlikely to impact margins for the acquired Arrow portfolio, since most of the value erosion is borne by pharmacies. Additionally, the erosion would be more than offset by value growth.

Given the price cuts, we expect STR's portfolio to see a moderate 5% CAGR in revenues over the next two years, with similar level of margins. Assuming 5.5% interest on an additional debt of USD 250 million to fund the Arrow acquisition (balance to be funded from cash on books), we expect the deal to add 18% to STR’s FY17E EPS. We upgrade our Mar'16 TP to Rs 1,515 (from Rs 1,355 earlier), valuing the base business at 16x Mar'16 EPS and adding the NPV value of cash and Sovaldi." 

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