Prabhudas Lilladher's research report on Indoco Remedies
1QFY21 earnings were mixed with revenue lower than our estimate but EBITDA and PAT higher due to higher gross margin and lower SG&A. INDR’s key growth driver for FY22E India formulation declined by 9% (55% of revenue) YoY even after restructuring its marketing divisions and sales team with new taxonomy of portfolio, focus and allotment of MRs (including additional headcounts). Europe has already made a strong comeback with 27% YoY growth in 1QFY21 and guided for a strong FY21E with revenue guidance of Rs2.25bn. We believe INDR ’s CAPEX cycle is over while its regulatory issues are behind. There could be a possibility of next few quarters to be inflection point for earnings recovery. It has multiple triggers like 1) increased focus on chronic products, 2) Strong order book for EU, 3) launch of new products in US and 4) underutilized API capacity. However, its Rs2.7bn debt and only Rs100m of cash remains overhang on the valuation. India formulations receive 40% of yearly sales in 1Q and disappointing growth in 1QFY21 due to impact of covid-19 could be hindrance for management to achieve its guided growth and margin in FY21E. INDR however maintains its guidance for FY21E.
Outlook
We increase our assigned PE to 18x from 17x of FY22E and derived new TP of Rs243 (earlier Rs219) to maintain parity over comparative valuation with peers. We maintain HOLD recommendation.
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