Visit http://indiaer.blogspot.com/ for complete details Indoco Remedies (Indoco) reported strong growth on the sales front, driven by
domestic sales. Further, during 2QFY2011, the company expanded its supply
agreements with Aspen and Watson to cover new products. While Aspen contract
is expected to commence contribution from FY2012, Watson contract is expected
to commercialise from FY2013. We recommend Accumulate on the stock, as
Indoco’s long-term drivers are intact (domestic segment: 120 products, 1,500MR;
and export segment: long-term supply agreement with Watson and Aspen).
Revenue beats estimates, domestic segment surprises: For 2QFY2011, Indoco
reported net sales of `132cr (`95cr), up 38.7% yoy, which were above
expectations due to higher-than-expected sales on the domestic formulation front.
Domestic formulation sales grew by 37.2% yoy due to strong traction witnessed in
the respiratory, anti-infective and gastro-intestinal segments. Indoco reported
OPM of 13.4% (13.0%) during the quarter, which was flat yoy, impacted by
higher raw-material cost. The company reported net profit of `15cr, which was
primarily in line with estimates on the back of lower OPM and higher tax charges.
Outlook and valuation: We expect net sales to post a 21.7% CAGR to `590cr and
EPS to register a 25.7% CAGR to `54.1 over FY2010–12E. The stock is trading at
12.1x and 9.3x FY2011E and FY2012E earnings, respectively. We recommend an
Accumulate rating on Indoco with a Target Price of `541.
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