IGI Logo

A temporary hiccup; better placed in 4Q and beyond 

Our view

High input costs finally caught up with Indoco leading to a gross margin decline QoQ coupled with softness in domestic revenues YoY. (3Q FY21 was a low base). Reckon revenue and costs trajectory represent a temporary hiccup rather than a multi quarter change. On the domestic front, top brands ATM, Oxipod, Sensodent K & Sensodent KF, Cital have clocked anywhere between 11‐30% CAGR in 9m FY22 vs 9m FY20 (9m FY21 was a distorted base). While Febrex Plus is in single digit growth vs 9m FY20, efforts on promotion can bring brand back on 10‐12% growth path. US revenues should rebound in 4Q upon presumed increase in Brinzolamide profit share. Domestic business should also end 4Q on a strong note and we continue to factor in early teens growth in FY23/24 on back of steady growth in top legacy brands, new launches and some degree of further price hikes. The last part should take care of increased input costs as also an expectation of lower COGS from Q1 FY23 onwards resulting in healthy margin improvement. While we cut FY22 estimate on gross margin decline, our FY23/24 estimates remain largely unchanged. Retain BUY based on ~20x FY24 EPS. 

Result Highlights

* Soft US revenues QoQ and underwhelming +15% India growth (3Q FY21 was a low base) failed to offset sharp rise in COGS

* Gross margin came in 69.6%, a sharp fall of 287bps QoQ and 196bps YoY on increased raw material costs  

* EBITDA margins up 241bps YoY on lower other expenses and staff costs

Valuation

While we cut FY22 estimate on gross margin decline, our FY23/24 estimates remain largely unchanged. Retain BUY based on ~20x FY24 EPS.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer