ICRA assigns valuation grade 'A' to Indoco Remedies

ICRA Online has assigned the Fundamental Grade ‘3+’ and the Valuation Grade ‘A’ to Indoco Remedies Limited (Indoco). The Fundamental Grade ‘3+’ assigned to Indoco implies that the company has “good fundamentals” relative to other listed securities in India. The Valuation Grade ‘A’ assigned to Indoco implies that the company is “significantly undervalued’ on a relative basis (as on the date of the grading assigned).

Incorporated in 1947, Indoco Remedies is engaged in the manufacturing and marketing of Formulations and APIs for domestic branded generics market contributing 67% of the revenues. The company also has an international presence through its fast growing formulation and API export business to regulated as well as semi-regulated markets.

Grading Positives
Established market position for domestic branded formulations business and leadership position for its key brands. Growing export business with healthy pipeline of contract manufacturing deals with large generic players. The company has adequate R&D facility and has demonstrated ability to file dossiers in the developed markets. Over the medium term we expect Indoco to gain from investments made in domestic Field Force expansion and new product launches to mirror growth of domestic Pharmaceutical Industry. For its Contract export business, the deals with Aspen and Watson will fructify from Q4FY12 onwards thereby giving boost to the business. The company has a strong financial profile, characterised by healthy profitability and cash generation, with low working capital requirements and modest gearing.

Grading Sensitivities
Key sensitivities to our estimates include: (1) Sharp increase in raw material prices 2) Delay in execution of contract manufacturing deals and sustainability of such deals 3) DPCO order impacting current brands thereby limiting pricing power 4) Adverse foreign exchange movements.

Valuation Grading: In assessing a company's valuation, various parameters are looked at including the company's earnings and growth prospects, its ability to generate free cash flows, and its capacity to generate returns from the capital invested. The valuation is also benchmarked against an appropriate peer set or index. The opinion on a company's relative valuation is expressed using the following five-point scale as follows:

ICRA Equity Research Service - Valuation Grades

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