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Pharma stocks have retained strong investor fancy due to their healthy growth in earnings and good long-term prospects. The stock of drug maker Indoco Remedies is an example. Despite a tepid show in the EU market, the company managed to grow revenues and profit by over 13 per cent and 23 per cent in the second half of 2014-15, albeit slower than in the first half. New launches in the home market, higher sales in the overseas markets and supply of generic drugs to the South-African drug maker Aspen have helped Indoco improve its operating profit margin from 14.7 per cent in 2012-13 to 19.4 per cent in 2014-15.
A pick-up in supplies of generic drugs to Ireland-headquartered Actavis and Aspen, coupled with steady performance in the home market, should help Indoco Remedies sustain healthy growth over the next two years.
The stock currently trades around 19 times its 2016-17 estimated earnings, at par with the BSE healthcare index.
Of the 32 products that Indoco had agreed to manufacture and supply to Actavis, for the US market, 16 products have already been filed and two have been launched. The 14 drugs that are awaiting final nod from the US drug regulator, the Food and Drug Administration, can spur Indoco’s growth over the next two-three years.
Besides, Indoco has also filed for products on its own in the US; in all, the company has filed over 50 products (includes own and partners’ filings) in the US. Likewise, revenues from the company’s tie-up with Watson to supply generic drugs to over 30 emerging markets are also scaling up; these should drive growth over the medium term.
In the home market, strong demand for its stomatological, anti-infective and vitamins and mineral drugs and launch of 19 products across therapy segments helped Indoco grow revenues by 15 per cent last year. Over the years, the company has shifted focus towards better-margin chronic therapies such as cardiovascular; this should help Indoco sustain growth momentum in the home market. Higher contribution from the more profitable geographies such as the US should also aid margins over the next two years.
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