Buy Indoco Remedies Ltd For Target Rs.430 - Yes Securities
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Temporary hiccup; BUY thesis intact
Result Synopsis
Indoco clocked a weak quarter as MTM loss clubbed in operating revenues and relatively high COGS led to lower gross and EBIDTA margin and a wide miss on PAT. Albeit, expectation is for a strong finish to US business in Q4 led by better contribution from Combigan and Brinzolamide. Also, forex gain/loss are broadly equivalent in 9m FY23 vs 9m FY22 at ~Rs240mn translating in to a reasonable ~10% growth YoY and margin of ~18%.
We expect US business to continue momentum with Combigan and Brinzolamide firing along with likely niche approvals (cardiac modified release, not granted so far). Europe business remains on track for margin improvement though revenue growth may not match current year’s run rate. Within domestic business, top brands are clocking 8% CAGR over last 3 years which is a healthy run rate compared to past. Along with new launches even older brands like Cyclopam and dental products have shown prescription growth. Overall, we stick to our thesis of ~11-12% topline growth over next 2 years translating into 17% EBIDTA and 20%+ PAT growth. Given the MTM loss in Q3 and some underlying gross margin weakness, we cut FY23 estimates by 17% but largely retained FY24 numbers. We also take this opportunity to introduce FY25 forecast and retain BUY based on 19x FY24 EPS with revised TP Rs430 (earlier Rs450).
Result Highlights
* Revenue declined ~8% QoQ and +11% YoY on back of MTM loss of Rs140mn
* US revenues up 22% YoY on back of Combigan launch and traction in Brinzolamide
* India business up 12% YoY as top brands clock high single digit growth YoY; Europe posts another strong quarter YoY with a robust outlook
* MTM loss and pressure from COGS led to weaker gross and EBIDTA margin along with corresponding miss on PAT
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