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Growth thesis intact; valuation attractive

Result Synopsis

Indoco reported a steady quarter with revenue growth in US and domestic business just below last year’s Azithro-fueled 2Q. While gross margin improved QoQ, EBIDTA margin excluding the Rs130mn of forex gain (as part of other operating income) would have been closer to 18% vs reported 20.3%.

Indoco gave a rather optimistic guidance for domestic business in H2 especially when it’s the seasonally weaker half for the industry. Management expects 5% growth in India implying a rather tall ask of 16% growth on base of H2 FY22. US appears on track for Rs3bn revenue target with Combigan ramp up and Brinzolamide profit share providing a boost in H2. Commentary around European business appeared very positive with expectation of margin improvement to 14% vs current 10% which would boost blended margin. We lower FY24 domestic growth to 10% (from 12%) and lower margin to ~20% from 21% earlier leading to a 9% cut in FY24 EPS. Albeit, even on a lowered estimate, stock is still attractive, offers decent domestic visibility and lack of pressure in US business given niche launches. Retain BUY for an unchanged 19x PE on FY24 EPS for a revised TP Rs450 (earlier Rs500).

Result Highlights

* Indoco reported an inline quarter with growth of 12% YoY and 6% QoQ

* India managed to stay flat on a somewhat enlarged base of last year while US grew 7% QoQ and 45% YoY on back of Brinzolamide led traction

* API revenues jumped sharply at 37% QoQ while operating income at Rs281mn (vs ~Rs130mn QoQ and Rs140mn YoY) was boosted by forex gain Rs130mn on Euro and GBP hedges

* Gross margin inched towards 70% (+300bps QoQ) as price hike in India would have taken effect + some moderation in input costs and forex gain in OOI

* PAT up 29% QoQ on healthy revenue performance and ~280bps QoQ rise in margin

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