Buy Indoco Remedies Ltd For Target Rs.450 - Yes Securities
BUY intact even keeping expectation modest
Result Synopsis
Indoco reported a miss on numbers as tepid US YoY and higher other expenses led to pressure on margin despite improvement in gross margin QoQ.
Company did miss its US guidance by a reasonable degree and margin expectation of 18% did not fully come through. While management appeared confident on US business to clock 25-30% growth in FY24 which appears on higher side as Combigan would be resold only from Oct’23 leaving too much to do for rest of the Brinzolamideled portfolio; launch of Brinzo higher SKU in April and addition of Plant 1 oral solid capacity would help US business in current year. Domestic business appears on a steady wicket with top brands barring a few (~9% average growth for top brands since FY20 except Febrex) and we stick to our ~10-11% growth expectation (vs 15% guided in FY24). Europe business remains on track for margin improvement though revenue growth may not match current year’s run rate. Overall, we retain our belief of ~9-11% topline growth (excluding other operating income) over next 2 years translating into 18% EBIDTA and 20%+ PAT growth. Given the weaker end to FY23, we cut FY24 estimates by 17% and ~5% cut in FY25 forecast. We roll over to FY25 EPS and retain BUY based on 19x FY25 EPS with revised TP Rs450 (earlier Rs430).
Result Highlights
* Revenue posted a slight miss at +4.7% YoY and +7% QoQ though margin performance much weaker than expected even factoring higher R&D QoQ
* India revenue down 4% YoY as anti-infectives, respiratory declined YoY
* US sales up 18% QoQ to Rs713mn though misses our estimate of ~Rs800mn
* Margin at 15% down 40bps QoQ and ~450bps YoY due to sharp 25% rise in other expenses ex-R&D both QoQ and YoY. Gross margin improves 200bps
* Higher tax rate and interest cost led to sizable miss on PAT
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