For 3QFY2016, Indoco Remedies (Indoco)’ results were in line with our
expectations on the sales front, while the net profit came in lower owing to a lower
than expected OPM. The company posted sales of Rs255cr (V/s Rs257cr estimated),
a growth of 19.6% yoy. The growth during the quarter came in through exports
(Rs112.1cr) which rose 34.6% yoy, while domestic market sales grew 9.8% yoy to
Rs141.9cr. On the operating front, the OPM came in at 15.4% V/s 18.3% in
3QFY2015 (and V/s an expected 16.5%). Thus, the net profit came in at Rs20.4cr
V/s Rs21.6cr in 3QFY2015, a dip of 5.6% yoy. This is against our expectation of
Rs25.4cr. Overall, we are Neutral on the stock.
Results lower than expected: The company posted sales of Rs255cr (V/s Rs257cr
estimated), a growth of 19.6% yoy. The growth during the quarter came in
through exports (Rs112.1cr) which rose 34.6% yoy, while domestic market sales
grew 9.8% yoy to Rs141.9cr. Exports growth during the period was aided by the
regulated markets (Rs90.4cr) which grew 36.3% yoy and emerging markets
(Rs139.0cr) which grew 32.6% yoy. On the operating front, the OPM came in at
15.4% V/s 18.3% in 3QFY2015 (and V/s an expected 16.5%). The margins
declined owing to 30.7% and 76.3% yoy rise in employee expenditure and R&D
expenditure respectively. Thus, the net profit came in at Rs20.4cr V/s Rs21.6cr in
3QFY2015, a dip of 5.6% yoy. This is against our expectation of Rs25.4cr.
Outlook and valuation: We expect net sales to post a 19.6% CAGR to Rs1,199cr
and EPS to post a 23.0% CAGR to Rs13.6 over FY2015-17E. At the current market
price, the stock is trading at 34.3x and 23.7x its FY2016E and FY2017E earnings,
respectively. We recommend a Neutral rating on the stock, given the valuations.
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