ICICI Direct's research report on Indoco Remedies
Revenues remained flat YoY at Rs 285 crore (I-direct estimate: Rs 291 crore). Export formulations declined 20% YoY to Rs 74 crore (I-direct estimate: Rs 94 crore) while domestic formulations grew 12% to Rs 188 crore (I-direct estimate: Rs 177 crore) EBITDA margins declined 56 bps YoY to 14.4% (I-direct estimate of 14.2%) mainly on account of lower gross margins (64.8% in Q2FY18 vs. 65.5% in Q2FY17). EBITDA declined 2.4% YoY to Rs 41 crore (I-direct estimate: Rs 41 crore) PAT declined 11% YoY to Rs 19.8 crore and came in below I-direct estimates, primarily due to higher interest expense.
Q2 numbers have seen a revival in domestic sales post-GST event, whereas exports sales showed a subdued performance mainly due to lower-than-expected US sales. Regarding GST related disruption the management has hinted improvement in distributor inventory days from a bottom of 17 days during June to 32 days as of now. The management expects the antibiotics and anti-infectives segments to start showing traction from Q3 onwards and further support domestic sales. However, on the exports front, the company is facing headwinds like Goa warning letter, pricing pressure in the US base business and structural issues in some semi-regulated markets. In this backdrop, the management is emphasising on cost aspects. Accordingly, measures to improve margins and doing away with non-core capex are some tasks undertaken by the management. We have ascribed a target price of Rs 250 based on 16x FY20E EPS of Rs 15.4.
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