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BUY Indoco Remedies - AnandRathi Institutional Research
Posted On : 2016-02-02 21:51:08( TIMEZONE : IST )
Indoco Remedies - Growth and margins likely to improve; Buy with a target price of Rs 390
We maintain our Buy call on Indoco Remedies, with a revised price target of Rs. 390. Indoco's Q3 FY16 margins were below our estimates, largely because of the lower gross margin and higher SG&A and R&D expenses. However, revenue grew 19.4% yoy, chiefly driven by its export-formulations business.
Weak margins. For Q3 FY16Indoco Remedies reported strong, 19.4% yoy, revenue growth, to Rs. 2.6bn, in line with our estimate. Its EBITDA margin slipped 302bps yoy, to 16.7% (vs. our estimated 19%) due to higher staff, SG&A and R&D expenses. Adj. PAT declined 5.6% yoy, to Rs. 204m (vs. our estimated Rs. 252m) on account of the weak margins.
Strong revenue growth. The 19.4% yoy revenue growth was largely driven by the robust 35.8%yoyrise in export formulations revenue. Exports to regulated markets experienced strong, 36.3% yoy, growth vs. our estimated 30% (the US business reported 22.2% yoy revenue growth to Rs. 297m) and those to emerging markets grew 32.8% yoy (above our estimate). Domestic formulations reported 10.5% yoy revenue growth, vs. our estimate of 15%. The API business registered 3.1% yoy growth.
Change in estimates. We trim our FY16, FY17 and FY18 estimates: of revenue by 0.3%, 3.6% and 1.9% respectively (due to lower-than-expected growth in domestic formulations in 9mFY16 and delay in product approvals in the US) and of adjusted PAT by 9.5%, 9.8% and 4.2% respectively (on account of low revenue growth and higher depreciation).
Valuations.We have a positive view of the stock, considering the company's potential for strong revenue growth and the improving margin. We maintain a Buy, with a revised price target of Rs. 390 (earlier Rs. 407), based on 18x FY18e earnings. Risks. Currency fluctuation, delay in supplies to Watson due to delay in product approvals.
Shares of INDOCO REMEDIES LTD. was last trading in BSE at Rs.319 as compared to the previous close of Rs. 322. The total number of shares traded during the day was 754 in over 65 trades.
The stock hit an intraday high of Rs. 324.45 and intraday low of 318.05. The net turnover during the day was Rs. 240931.
