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Growth expectation intact

Result Synopsis

Result Synopsis Indoco delivered better than expected revenue growth of 34% YoY with US revenue driving a sharp growth YoY. This was further aided by strong show in domestic business on a low base. Management expects growth on this high base in FY23 led by rebound in Stomatologicals. Margins have fallen as RM prices along with higher freight prices affected 4Q.

Indoco guides to a strong 40% growth in US business as Brinzolamide market share ramp up and Combigan launch in July drive H2 revenues. We reckon US business is dependent on these two key products along with ~6 new launches in current fiscal. Indoco would also be shielded from price erosion due to ophthalmic nature of launches. Capex of Rs550mn on 3 additional blocks comprising sterile and ophthalmic capacities should support growth in Europe and US. Domestic business has a high base of FY22 to contend with & expect ~8-9% growth in current fiscal (~12-13% on ex-Covid base) driven by rebound in Stomatologicals though acute therapies would be subdued. Importantly, we now expect margin to be lower than FY22 largely on back of lower gross margin expectation. Unless there is worsening of key starting material prices from China (management alluded to recent flatlining prices), expect 4Q or at worst 1Q margin to mark a bottom. We have raised revenue estimates for FY22 on back of strong US guidance which has offset impact of gross margin cut; a bottoming out of margin coupled with unchanged growth outlook would support rerating – retain target 19x on FY24 EPS with marginally lower TP Rs500 (earlier Rs530). On back of strong growth prognosis, Indoco remains one of our top bets in pharma.

Result Highlights

▪ Revenue up 34.1% YoY to Rs 4,091mn, much higher than our estimate of 24% growth YoY.

▪ Gross margins declined 180bps QoQ to 67.9% as higher input costs negated the effect of higher sales and higher utilization.

▪ Operating margins came in at 19.7% and were down 83bps QoQ due to increased freight costs

▪ PAT increased 62% YoY and 23% QoQ, ahead of our estimates (+43% YoY) on solid revenue performance

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