Broker's call: Indoco Remedies (Sell)

| Updated on January 25, 2020

India Nivesh

Indoco Remedies (Sell)

CMP: ₹223.1

Target: ₹100

Indoco reported an in-line Q3, with sales growth of 14 per cent y-o-y and EBITDA margins at 13 per cent driven by domestic formulations (17 per cent y-o-y). Gross margins saw a sharp uptick at 71 per cent (300 bps y-o-y) led by improved business mix. Management has guided that gross margins are expected to remain healthy as revenues from US shows sharp improvement.

Led by sustained traction in India (65 per cent of sales) and better visibility from US, Indoco management remains confident of healthy double digit growth in FY21E. The company has received two partnered product approval (Glycopyrrolate and Tranexemic) from Goa plant II.

We expect sales to register a 16 per cent CAGR over FY19–22E, with EBITDA margin improving to 14.5 per cent on a lower base until the capacity utilisation for exports plays out. At the CMP, the stock trades at 20.5x FY21E EPS of ₹8. We broadly maintain our estimates for FY20/21 at ₹4.3 and ₹7.7 respectively. We also introduce FY22E numbers in this report with an EPS of ₹10. Given the recent run up in the stock, we believe the street is factoring the turnaround in the export formulations.

Maintain ‘sell’.

Published on January 25, 2020

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