Strides Pharma Science Ltd Downgraded to Sell Amid Technical and Fundamental Concerns

Quality Assessment: Mixed Financial Performance Amid Structural Weakness

Strides Pharma’s recent quarterly performance for Q2 FY25-26 has been encouraging, with operating profit reaching a peak of ₹231.56 crores and profit before tax (PBT) excluding other income surging by 118.5% to ₹134.75 crores. The company has also maintained positive results for nine consecutive quarters, reflecting operational resilience. Its operating profit to interest coverage ratio stands at a healthy 5.02 times, indicating reasonable short-term debt servicing ability.

However, the long-term fundamental strength remains underwhelming. The average Return on Capital Employed (ROCE) over recent years is a modest 7.27%, signalling limited efficiency in generating returns from capital investments. Net sales have grown at an annualised rate of 9.87%, while operating profit has expanded by 12.79% annually over the past five years—both figures lagging behind sector averages. Furthermore, the company’s debt burden is significant, with a Debt to EBITDA ratio of 6.58 times, raising concerns about financial leverage and risk.

Adding to investor caution is the high promoter share pledge, with 44.13% of promoter holdings encumbered. In volatile or declining markets, this can exert additional downward pressure on the stock price, as pledged shares may be liquidated to meet margin calls.

Valuation: Attractive Yet Reflective of Underlying Risks

From a valuation standpoint, Strides Pharma appears reasonably priced relative to its peers. The company’s ROCE of 15.6% on a more recent basis supports an enterprise value to capital employed ratio of 2.2, which is considered attractive within the pharmaceuticals sector. The stock currently trades at a discount compared to the average historical valuations of its peer group, suggesting potential upside if operational improvements materialise.

Nevertheless, this valuation attractiveness is tempered by the company’s inconsistent profit trajectory. Despite generating a robust 39.82% return over the past year, net profits have declined by 14.7% during the same period, highlighting volatility in earnings quality. Investors should weigh the discounted valuation against the risks posed by earnings instability and financial leverage.

Financial Trend: Positive Quarterly Momentum Contrasted by Weak Long-Term Growth

Strides Pharma’s recent quarterly financials demonstrate positive momentum, with key profitability metrics reaching multi-quarter highs. The company’s PBT excluding other income and operating profit have both shown strong growth, signalling operational improvements in the near term.

However, the longer-term financial trend remains subdued. Over the last five years, sales and operating profit growth rates have been modest, and the company’s ability to service debt is constrained by a high leverage ratio. This dichotomy between short-term gains and long-term structural challenges underpins the cautious stance adopted by analysts.

Technical Analysis: Shift to Mildly Bearish Signals Triggers Downgrade

The most significant catalyst for the downgrade to a Sell rating is the deterioration in technical indicators. The technical grade has shifted from mildly bullish to mildly bearish, reflecting weakening price momentum and trend signals. Key technical metrics include:

• MACD (Moving Average Convergence Divergence) on both weekly and monthly charts is mildly bearish, indicating declining momentum.


• RSI (Relative Strength Index) remains neutral with no clear signal, suggesting indecision among traders.


• Bollinger Bands show bearish tendencies on the weekly chart, though the monthly chart remains mildly bullish, reflecting mixed volatility signals.


• Moving averages on the daily chart are mildly bullish, but this is outweighed by bearish weekly and monthly KST (Know Sure Thing) and Dow Theory indicators.


• On-Balance Volume (OBV) shows no clear trend weekly and mildly bearish monthly, indicating weak buying pressure.

These technical signals coincide with a recent price decline, with the stock falling 3.28% on the day to ₹871.10 from a previous close of ₹900.65. The stock’s 52-week high stands at ₹1,024.90, while the low is ₹530.70, reflecting significant volatility over the past year.

Comparatively, Strides Pharma’s stock returns have underperformed the Sensex in the short term, with a 1-week return of -6.27% versus Sensex’s -0.75%, and a 1-month return of -6.42% against Sensex’s -1.98%. However, the stock has outperformed the benchmark over longer horizons, delivering 39.82% returns over one year and an impressive 453.20% over three years, underscoring its volatile but potentially rewarding nature.

Investment Outlook: Cautious Approach Recommended

In summary, the downgrade of Strides Pharma Science Ltd to a Sell rating reflects a confluence of factors. While the company exhibits pockets of operational strength and attractive valuation metrics, these are overshadowed by weak long-term fundamentals, high financial leverage, and a shift to bearish technical trends. The high promoter share pledge adds an additional layer of risk, particularly in volatile market conditions.

Investors should approach the stock with caution, recognising that despite strong historical returns over multi-year periods, recent price action and fundamental signals suggest increased downside risk. The stock’s current Mojo Score of 34.0 and a Market Cap Grade of 3 further reinforce the Sell recommendation, indicating limited upside potential relative to risk.

For those seeking exposure to the pharmaceuticals sector, it may be prudent to consider alternative stocks with stronger financial health and more favourable technical setups.

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