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Indoco Remedies 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Indoco Remedies (Indoco)’s revenues as well as net profit were lower than expected. The company posted a sales growth of 6.0% yoy, while the net profit growth came in lower than expected, de-growing by 10.7% yoy. This was mainly on account of lower-than-expected sales. The OPM was resultantly impacted, which came in at 10.8%. While FY2013 has witnessed an overall lower sales growth, FY2014 is likely to witness a robust growth, both on the back of exports and domestic formulations. We recommend Buy with a revised target price of Rs.78.

Results lower than expected: Indoco reported net sales of Rs.150cr (Rs.142cr in 3QFY2012), up 6.0% yoy, but lower than our expectation of Rs.185cr for 3QFY2013. The growth for the quarter came in mainly on the back of domestic business, which grew by 8.8% yoy. The domestic formulations grew by 11.0% yoy. The gross margin came in at 57.8%, ie higher than our expectations. Also, the OPM came in at 10.8%, below our expectations of 16.4%, and contracting by 214bp on a yoy basis, mainly on back of lower sales during the quarter. Consequently, the net profit for the quarter came in at Rs.7.0cr, 60.0% below our estimate of Rs.18cr.

Outlook and valuation: We expect net sales to post a 17.4% CAGR to Rs.784cr and EPS to post a 24.8% CAGR to Rs.7.8 over FY2012-14E. At Rs.62, the stock is trading at 10.8x and 7.9x FY2013E and FY2014E earnings, respectively. We recommend Buy on the stock with a revised target price of Rs.78.