Hold FDC; target of Rs 260: Centrum Research

Centrum Research's research report on FDC

We maintain Hold rating for FDC and revise our TP to Rs260 (earlier Rs280) based on 17x March’20E EPS of Rs15.3. FDC’s Q4FY18 revenues were in line with our expectations but EBIDTA and net profit were lower than our estimates. FDC’s revenue grew 6% YoY, EBIDTA margin declined by 980bps to 11.2% and net profit declined by 36%. Seven out of its top nine brands grew faster than the market and are likely to drive future growth. FDC has completed buyback of 3.43mn shares at Rs350 per share aggregating to Rs1.2bn. Key upside risks to our assumptions are faster growth of its major brands and key downside risk includes slow growth of the domestic pharma market. We recommend a switch to Aurobindo or Cipla.

Outlook

We expect FDC to report good performance in the domestic market due to its strong brands and marketing thrust. We maintain Hold for FDC with a TP of Rs260 based on 17x March’20E EPS of Rs15.3, and an upside of 9.7% from CMP.  We have revised our FY19E and FY20E EPS downwards by 12% and 6% respectively. Key upside risks to our assumptions are higher growth of its major brands and key downside risk includes slowdown of the domestic pharma market.

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