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Indoco Remedies Ltd>
  • CMP : 372.4 Chg : -0.85 (-0.23%)
  • Target : 510.0
  • Target Period : 12-18 Month

18 May 2022

Robust quarter; outlook for sustainable growth…

About The Stock

Indoco manufactures and markets branded formulations and APIs for the domestic and export markets. In domestic formulations, through its nine marketing divisions, the company serves a range of specialties.

  • Domestic formulations accounted for 54% of revenues. Major therapies are: respiratory, anti-infectives, stomatologicals, gastrointestinals and vitamins
  • Formulation exports accounted for 41% (regulated markets:81%) of revenues while APIs contributed 4% with remaining coming from CRAMS

Indoco reported robust revenue growth in both domestic (up 39% YoY to ₹ 193 crore) and export formulations (up 44% YoY to ₹ 190 crore)

  • Sales were up 34% YoY to ₹ 409 crore
  • EBITDA was at ₹ 81 crore, up 47% YoY with margins at 19.7%
  • PAT for Q4 was at ₹ 40 crore (up 62% YoY)
What should Investors do?

Indoco’s share price has grown by ~1.9x over the past three years (from ~₹ 185 in May 2019 to ~₹ 363 levels in May 2022).

  • We retain BUY rating on the stock due to steadiness in domestic business and outlook for inflows from exports amid better operating leverage
Target Price Valuation

We value Indoco Remedies at ₹ 510 i.e. 18x P/E on FY24E EPS of ₹ 28.4.

Key Triggers for future price performance
  • Restructuring exercise for improvement in MR productivity and therapy calibration is likely to yield productive growth in Indian formulations
  • Clearance from UK-MHRA and lifting of USFDA warning letters for Goa plant II and III is likely to improve operating leverage for export formulations
  • Indoco will benefit with market share gains in covered markets domestically while export formulations are likely to grow with a strong pipeline, visible launch schedule and robust order book
  • Niche ANDA filings in ophthalmic, injectable and oral solid dosages in the US to scale up the US share from a low base
New Stock Ideas

Apart from Indoco, in healthcare coverage we like Ajanta.

  • It is mainly into domestic as well as exports formulations with focus on launching maximum number of first time launches
  • BUY with a target price of ₹ 1955

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Revenues 968.5 1,106.6 1,241.5 1,540.8 7.0 1,819.1 2,085.6 16.3
EBITDA 76.7 123.2 224.3 327.3 15.9 365.4 446.4 16.8
EBITDA margins (%) 0.1 0.1 0.2 0.2 - 0.2 0.2 -
Adjusted PAT -2.9 24.1 93.1 154.8 15.0 201.3 261.7 30.0
EPS (Adjusted) -0.3 2.6 10.1 16.8 - 21.8 28.4 -
PE (x) -1,159.8 139.5 36.1 21.7 - 16.7 12.9 -
M.Cap/ Revenues (x) 3.5 3.0 2.7 2.2 - 1.8 1.6 -
EV to EBITDA (x) 47.3 29.1 16.1 11.0 - 9.6 7.5 -
RoNW (%) -0.4 3.5 12.1 17.1 - 18.7 20.2 -
RoCE (%) 0.9 4.6 11.7 17.5 - 18.8 24.9 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results: Strong numbers in both domestic, exports

  • Revenues grew 34% YoY to | 409 crore driven by 39% YoY growth in domestic formulations to | 193 crore due to strong performance in anti-infective, cardiac and respiratory therapeutic areas. Export formulations expanded 44% YoY to | 190 crore. EBITDA margins improved 175 bps YoY to 19.7%, mainly due to better operating leverage. EBITDA grew 47% YoY to | 81 crore. PAT for the quarter came in at | 40 crore, up 62% YoY. The board has declared a dividend of | 2.25 per equity share for FY22
  • Q4 numbers were in line with our estimates while domestic formulations fared better than expected. The company’s domestic business continues to focus on brand building, thrust on chronic and sub-chronic segment as well as penetration in the north and east regions. Indoco’s US business comprises niche products with 15 out of 20 being injectable/opthal. Growth is likely to persist on the back of commercialisation of several ANDAs. The company has a healthy order book in EU and robust pipeline in ophthalmics and injectables, will enable Indoco to have an edge in the international business

Q4FY22 Earnings Conference Call highlights

  • Domestic Business: Major therapeutic segments like anti-infective, cardiac and respiratory performed well in Q4FY22 compared to Q4FY21. Launched two products: Subitral and Subitral DS (Itraconazole – Derma) in Q4 with total six launches in FY22. Covid related revenues in FY22 were ~ | 30 crore, majorly contributed by Karvol Plus, ATM and Oxipod. The management has guided for 4-5% price hike in non-NLEM portfolio while NLEM portfolio (~11% of domestic sales) will get standard price hike. For Q4FY22, price led growth was 6%, new launches were 2% while rest was volume growth. PCPM for Indoco is ~ | 3.3 lakh and the company aims to increase PCPM to | 4 lakh in two years. The management guided for 12-15% growth in FY23
  • US: In Q4, profit sharing income was | 4 crore while dossier income was at | 18 crore. Due to 15 out of 20 products being injectable/opthal, rest being OSDs, Indoco is not experiencing pricing pressure in the US portfolio. Three ANDAs were launched in the US including Lacosamide tablet and Lacosamide injection. The company guided for five to six ophthalmic launches in 18-24 months. In the US, Indoco’s Brinzolamide market share is at ~5 -7% and the company is looking to ramp this up to 20% by July, 2022. Indoco is looking to be second generic entry (July, 2022) for Combigan in US (ophthalmic product with market size of ~ US$490 million). The management believes the US could grow 40% in FY23
  • API: Total 54% of API production used for captive consumption in FY23. Indoco guided for | 120 crore of external sales and captive consumption
  • Capex: In FY22, Indoco added new injectable line earmarked for US, built block for high potency products (large contracts from EU for OSDs) and within that another block for sustained release capsules (EU focussed) were added. All contribution is expected from July, 2022. Capex for FY23 is likely to be | 110-120 crore, mainly for fresh line in ophthalmic plant and maintenance capex
  • Others:
    • Indoco keeps 1 month of packaging inventory and two months of raw material inventory
    • In semi-regulated markets, French West Africa contributed | 50 crore and Kenya contributed | 28 crore in FY22
Variance Analysis

  Q4FY22 Q4FY21 Q3FY22 YoY (%) QoQ (%)   Comments
Revenue 409.1 305.1 358.0 34.1 14.3   YoY growth driven by strong growth in domestic and exports formulations
Raw Material Expenses 131.5 87.9 108.7 49.5 21.0    
Gross margins (%) 67.9 71.2 69.6 -332 bps -178 bps    
Employee Expenses 73.2 60.2 71.3 21.7 2.7    
Other Expenditure 104.2 85.9 87.5 21.3 19.2    
R&D 19.7 16.4 17.1 19.8 15.0    
EBITDA 80.5 54.7 73.5 47.2 9.7    
EBITDA (%) 19.7 17.9 20.5 175 bps -83 bps   YoY improvement mainly due to cost control measures and better operation leverage
Interest  3.0 4.6 3.8 -33.8 -20.2    
Depreciation 18.1 18.6 19.2 -2.7 -6.1    
Other Income 0.3 2.0 0.2 -84.8 87.5    
PBT before EO & Forex 59.8 33.6 50.6 78.0 18.1    
Forex & EO 0.0 0.0 0.0 0.0 0.0    
 PBT  59.8 33.6 50.6 78.0 18.1    
Tax  19.3 8.6 17.6 125.5 9.7    
Net Profit 40.5 25.0 33.0 61.8 22.6   YoY growth mainly due to strong operational performance and lower interest cost
Key Metrics              
Domestic Formulations 192.9 139.2 181.6 38.5 6.2   YoY growth due to strong growth in anti-infective, cardiac and respiratory therapies
Export formulations 189.6 131.8 143.1 43.8 32.5   Regulated markets grew 39% YoY and semi-regulated markets grew 25% YoY
APIs 13.1 19.9 19.7 -34.2 -33.5   Captive consumption at 53%

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