Buy Indoco Remedies, target price Rs 500: Yes Securities

Yes Securities has buy call on Indoco Remedies with a target price of Rs 500. The current market price of Indoco Remedies is Rs 365.9. Time period given by analyst is year when Indoco Remedies price can reach defined target.

Indoco Remedies, incorporated in the year 1947, is a Small Cap company (having a market cap of Rs 3375.47 crore) operating in Pharmaceuticals sector.

Indoco Remedies key Products/Revenue Segments include Pharmaceuticals, Sale of services, Export Incentives, Other Operating Revenue and Scrap for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-03-2022, the company has reported a Consolidated Total Income of Rs 409.43 crore, up 14.31 % from last quarter Total Income of Rs 358.16 crore and up 33.31 % from last year same quarter Total Income of Rs 307.12 crore. Company has reported net profit after tax of Rs 40.45 crore in latest quarter.

Investment Rationale
Indoco delivered better than expected revenue growth of 34% YoY with US revenue driving a sharp growth YoY. This was further aided by strong show in domestic business on a low base. Management expects growth on this high base in FY23 led by rebound in Stomatologicals. Margins have fallen as RM prices along with higher freight prices affected 4Q.

Indoco guides to a strong 40% growth in US business as Brinzolamide market share ramp up and Combigan launch in July drive H2 revenues. The brokerage reckons US business is dependent on these two key products along with ~6 new launches in current fiscal. Indoco would also be shielded from price erosion due to ophthalmic nature of launches. Capex of Rs 550 mn on 3 additional blocks comprising sterile and ophthalmic capacities should support growth in Europe and US. Domestic business has a high base of FY22 to contend with & expect ~8-9% growth in current fiscal (~12-13% on ex-Covid base) driven by rebound in Stomatologicals though acute therapies would be subdued.

Importantly, the brokerage now expects margin to be lower than FY22 largely on back of lower gross margin expectation. Unless there is worsening of key starting material prices from China (management alluded to recent flatlining prices), expect Q4 or at worst Q1 margin to mark a bottom. The brokerage has raised revenue estimates for FY22 on back of strong US guidance which has offset impact of gross margin cut; a bottoming out of margin coupled with unchanged growth outlook would support rerating – retain target 19x on FY24 EPS with marginally lower TP Rs 500 (earlier Rs 530). On back of strong growth prognosis, Indoco remains one of our top bets in pharma, it said.

Promoter/FII Holdings
Promoters held 58.69 per cent stake in the company as of 31-Mar-2022, while FIIs owned 1.15 per cent, DIIs 18.28 per cent.