indoco remedies 4q fy 2013

7/28/2019 Indoco Remedies 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Y/E March (` cr) 4QFY13 3QFY13 % chg (qoq) 4QFY12 % chg (yoy)Net sales 160 150 6.8 148 8.7Other operating income (1) 3 (136.9) 0 (740.0)

Gross profit 97 87 11.4 83 16.7

Operating profit 27 16 66.0 15 83.8

Net profit 13 7 74.1 13 2.6Source: Company, Angel Research

For 4QFY2013, Indoco Remedies (Indoco) declared lower-than-expected

both - revenue and net profit. On the sales front, the company posted sales

growth of 8.7% yoy, while on the net profit front, growth came in lower than

expected, growing by 2.6% yoy. This was mainly on account of lower than

expected sales and higher interest expenses during the period. While FY2013 was

witness to lower sales growth, FY2014 is likely to witness a robust growth, both on

back of exports and domestic formulations. We recommend Buy with a targetprice of`78.Results lower than expected: Indoco reported net sales of `160cr (`148cr), up8.7% yoy, but lower than our expectation of `176cr for 4QFY2013. The growth

for the quarter came in mainly on the back of the domestic business, which grew

by 10.8% yoy. The domestic formulations grew by 11.0% yoy, while exports grewby 5.7%. Gross margin came in at 60.2%, higher than expectations. However, the

OPM came in at 16.7%, just in line with expectations of 16.9% due to lower than

expected R&D expenses during the quarter. On a yoy basis, it expanded by

213bps. Consequently, the net profit for the quarter came in at `13.0cr, 43.3%

below our estimate of`23cr.

Outlook and valuation:We expect net sales to post a 21.3% CAGR to`922cr andEPS to post a 29.8% CAGR to`7.8 over FY2013-15E. At CMP, the stock is trading

at 10.3x and 8.1x FY2014E and FY2015E earnings, respectively. We recommendBuy on the stock with a target price of `78.Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 568.8 626.4 760.8 922.0% chg 18.9 10.1 21.4 21.2

Net profit 46.3 42.7 56.2 71.9% chg (9.2) (7.9) 31.9 27.9

EPS (`) 5.0 4.6 6.1 7.8EBITDA margin (%) 14.9 14.2 15.3 15.3

P/E (x) 12.5 13.6 10.3 8.1

RoE (%) 12.6 10.7 12.9 14.7

RoCE (%) 13.0 11.9 14.3 15.3P/BV (x) 1.5 1.4 1.3 1.1

EV/Sales (x) 1.2 1.1 1.0 0.8

EV/EBITDA (x) 8.1 7.4 6.3 5.4

Source: Company, Angel Research

BUYCMP `62

Target Price `78

Investment Period 12 months

Stock Info

Sector

94

Bloomberg Code INDR@IN

Shareholding Pattern (%)

Promoters 59.2

MF / Banks / Indian Fls 18.2

FII / NRIs / OCBs 2.1Indian Public / Others 20.5

Abs. (%) 3m 1yr 3yr

Sensex (0.9) (5.8) 11.4

Indoco (13.1) (3.4) 121.0

2

17,144

5,200

INRM.BO

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

498

0.2

66/48

6,391

Net Debt (`cr)

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Sarabjit Kour Nangra+91 22 39357600 Ext: 6806

[email protected]

Indoco RemediesPerformance Highlights

4QFY2013 Result Update | Pharmaceutical

May 30, 2013


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Indoco Remedies | 4QFY2013 Result Update

May 30, 2013 2

Exhibit 1:4QFY2013 (Consolidated) performanceY/E March (` cr) 4QFY2013 3QFY2013 % chg (qoq) 4QFY2012 % chg (yoy) FY2013 FY2012 % chg (yoy)Net sales 160 150 6.8 148 8.7 626 560 12Other income (1) 3 (136.9) 0 (740.0) 5 11 (1)

Total income 159 154 3.6 148 631 571 11Gross profit 97 87 11.4 83 16.7 364 315

Gross margins (%) 60.2 57.8 56.1 58.2 56.3Operating profit 26.9 16.2 66.0 21.6 24.5 89.1 75.9 17.3

OPM (%) 16.7 10.8 14.6 14.2 13.6Interest 5 5 2.4 3 82.4 22 16 34

Dep & amortisation 6 6 9.3 5 17.5 24 19 23

PBT 16 5 182.5 13 15.3 44 40 8

Provision for taxation 1.4 1.6 (11.3) 1 21.6 5.7 4.9 16

Reported Net profit 13 7 74.1 13 2.6 43 46 (8)Less : Exceptional items 0 0 - 0 0 0

PAT after exceptional items 13 7 74.1 13 2.6 43 46 (8)EPS (`) 1.4 0.8 1.4 4.6 5.0Source: Company, Angel Research

Exhibit 2:4QFY2013 Actual vs. Angel estimates(` cr) Actual Estimate Variation (%)Net sales 160 176 (8.6)Other operating income (1) 4 -

Operating profit 27 30 (9.1)

Tax 1 6 (75.8)

Net profit 13 23 (43.3)Source: Company, Angel Research

Revenue below expectations: For 4QFY2013, Indoco reported net sales of`150cr(`148cr), up 8.7% yoy, but below our expectations of `176cr. While the domestic

business grew by 10.8%, exports were almost flat registering a growth of 5.7% yoy.

In domestic markets, the formulation business during the period grew by 12.9%

yoy. Among the therapeutic segments which performed well during the quarter are

Respiratory, Stomatological, Anti- Infectives, Life Style and Gastro Intestinal. The

company has launched 37 products during the year, out of which 9 products were

launched in the Chronic Segment.

Revenue from the regulated market grew by 21.7% to `52.9cr in 4QFY2013 as

against `42.3cr in 4QFY2012. Revenue from emerging markets came in at

`5.18cr as against`11.98cr in 4QFY2012. API export sales stood at `5.45cr as

compared to`4.76cr during 4QFY2012.


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May 30, 2013 3

Exhibit 3:Domestic formulation sales trend

82

94

110

9493

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

4QFY2012 1QFY2013 2QFY2013 3QFY2013 4QFY2013

(`cr)

Source: Company, Angel research

Exhibit 4:Export sales trend60

54

5052

64

0

10

20

30

40

50

60

70


(`cr)

Source: Company, Angel research

OPM just in line with estimates: Gross margin came in at 60.2%, higher thanexpectations. However, OPM came in at 16.7%, just in line with expectations of

16.9% due to lower than expected R&D expenses during the quarter. On a yoy

basis, it expanded by 213bp on a yoy basis. R&D Expenses during the quarter

were 1.7% of sales vs 2.7% during the last corresponding period.


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May 30, 2013 4

Exhibit 5:OPM trend

14.6

13.7

15.4

10.8

16.7

8.0

10.0

12.0

14.0

16.0

18.0


(%)


Net profit below expectation: Consequently, the Net profit for the quarter came inat`13.0cr, 43.3% below our estimate of `23cr. This mainly came on back of the

lower than expected sales and higher interest component during the period, which

was around`5.1cr vs `2.8cr.

Exhibit 6:Net profit trend13

10

7 7

12

0

3

6

9

12

15


(`

cr)


Concall takeaways

Management is confident of achieving revenues of`1,000cr by FY2015 withOPM of 20%, with domestic business contributing 65% of sales and exports

contributing around 35%.

The new drug price control order announced by the government of Indiaaffects 8 Indoco products, which according to management affects less than

0.5% of its domestic formulations sales.

In FY2014, the company will launch 3 new products with Watson (2 of whichare ophthalmic products and have a huge potential market).

With Aspen the company added two more projects for product development. The launch of two ophthalmic products in US market got delayed due to delay

in ANDA approval from US-FDA.


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May 30, 2013 5

The contract manufacturing business is expected to be partially replaced overa period of time by supplies against own dossiers/marketing authorizations in

European markets.

MR strength of the company is ~2,300 as on FY2013 and company does notexpect any major additions in the same.

Investment argumentsFocus on domestic formulation- Aiming for the higher than industry growth: Indocohas a strong brand portfolio of 135 products and a base of ~2,300MRs. The

company operates in various therapeutic segments, including anti-infective,

anti-diabetic, CVS, ophthalmic, dental care, pain management and respiratory.

Prominent Indoco brands include Cyclopam, Vepan, Febrex Plus,ATM,Sensodent-

K and Sensoform. The company has seen strong growth across the respiratory,

anti-infective, ophthalmic and alimentary therapeutic segments. Further, the

company is investing to enhance its share of the chronic segment, which constitutes10% of the overall sales.

Post the restructuring of the domestic business in FY2009, which has resulted in an

improvement in the working capital cycle, Indoco is back on the growth trajectory

with its domestic formulation business growing at a healthy pace of 15.4% during

FY2013 vs 11.7% CAGR during FY2009-12. Going forward, the Management

expects the domestic formulation business to outperform the industry. We expect

the domestic formulation segment to grow at 15% CAGR during FY2013-15E.

Scaling-up on the export front: Indoco has also started focusing on regulatedmarkets by entering into long-term supply contracts. The company is currently

executing several contract-manufacturing projects, and covering a number of

products for its clients in the UK, Germany and Slovenia. The company has

indicated at a capex of`55cr for the construction of the API facility in Patalganga

and is expecting the USFDA approval, the same will enhance the exports growth.

We expect the exports segment to grow at 34.5% CAGR during FY2013-15E.

Partnering with Pharmaceutical majors: The company has a large customer baseof small and medium sized generic companies across the globe and has major tie-

ups with generic companies for certain territories and products. The deal with

Watson Pharmaceuticals, Inc. (Watson) is to develop and manufacture a number

of sterile (ophthalmic) products for marketing in USA. The agreement with South

Africa's largest pharmaceutical company, Aspen Pharmacare Limited (Aspen)

encompasses a number of solid dosages and ophthalmic products, extending to

30 countries of the Emerging Markets, while the contract signed with DSM, Austria,

is for marketing eight of Indoco's Active Pharmaceutical Ingredient in various

geographies. These deals have further strengthened Indoco's image in the

international arena.

Trial batches of two sterile ophthalmic products to Watson have already started in

2QFY2013, and commercial supplies are expected to start from 1QFY2014,

followed by product approval from USFDA. Supplies to Aspen began in 4QFY2012

and would scale up gradually.


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Valuations: We expect net sales to post a 21.3% CAGR to`922cr and EPS to posta 29.8% CAGR to`7.8 over FY2013-15E. At CMP, the stock is trading at 10.3x

and 8.1x FY2014E and FY2015E earnings, respectively. We recommend Buy onthe stock with a target price of `78.Exhibit 7:Key assumptions

FY2014E FY2015EDomestic sales growth (%) 14.3 14.4

Exports growth 37.9 31.6

Operating margins (%) 15.3 15.3

Capex (`cr) 69.0 60.0


Exhibit 8:One-year forward PE band

-

100

200

300

400

500

600

Apr-

06

Oc

t-06

May-0

7

Nov-0

7

Jun-0

8

Dec-0

8

Jul-09

Fe

b-1

0

Aug-1

0

Mar-

11

Sep-1

1

Apr-

12

Oc

t-12

May-1

3

(`)

Price 10x 15x 20x 25x


Exhibit 9:Recommendation summaryCompany Reco CMP Tgt. price Upside FY2015E FY12-15E FY2015E

(`) (`) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)Alembic Pharma. Neutral 134 - - 9.7 1.3 6.6 26.1 34.0 34.7

AurobindoPharma

Buy 177 264 49.0 9.2 1.1 7.0 58.2 12.0 18.0

CadilaHealthcare

Buy 775 962 24.1 16.1 2.0 11.1 14.8 18.5 24.7

Cipla Buy 383 444 15.8 17.3 2.8 12.7 1.4 15.7 15.9

Dr Reddy's Buy 2,105 2,535 20.4 16.6 2.4 12.1 10.8 18.3 21.8

Dishman Pharma Buy 75 206 174.7 3.4 0.8 3.9 47.9 12.0 13.7

GSK Pharma* Neutral 2,300 - - 27.6 5.3 18.7 4.8 36.1 31.0

Indoco Remedies Buy 63 78 23.8 8.1 0.8 5.4 15.8 15.3 14.7Ipca labs Accumulate 599 676 12.8 13.3 1.9 9.0 30.6 26.0 25.3

Lupin Accumulate 768 877 14.2 18.4 2.4 11.3 29.1 28.5 24.8

Ranbaxy* Neutral 382 - - 17.0 1.1 8.8 (6.8) 13.1 19.1Sanofi India* Neutral 2,610 - - 26.3 2.6 15.8 13.4 15.9 16.7

Sun Pharma Neutral 1073 - - 27.0 6.0 14.6 15.8 29.4 22.0

Source: Company, Angel Research; Note: *December year ending


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Background

Indoco has a strong Brand portfolio of 120 products and a base of 1,600 medical

representatives. The company operates in various therapeutic segments including

the Anti-infective, Anti-diabetic, CVS, Ophthalmic, Dental care, Pain management

and respiratory areas. Prominent Indoco brands include Cyclopam, Vepan, FebrexPlus, ATM, Sensodent-K and Sensoform. The companys Top-10 brands contribute

over 50% of Domestic Sales. Indoco now proposes to scale up its exports through

higher exposure to the regulated markets.

Profit & loss statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EGross sales 402 484 576 638 770 932Less: Excise duty 4 5 7 11 9 10

Net sales 398 478 569 626 761 922Other operating income 5 8 2 4 4 4

Total operating income 403 486 571 630 765 926% chg 14.4 20.7 17.4 10.4 21.3 21.1

Total expenditure 345 414 484 537 645 781

Net raw materials 174 213 245 262 318 386

Other mfg costs 46 29 39 37 44 54

Personnel 56 67 82 100 122 148

Other 69 105 119 138 160 194

EBITDA 53 64 85 89 116 141% chg 14.8 21.5 31.2 5.4 30.2 21.2

(% of Net Sales) 13.3 13.5 14.9 14.2 15.3 15.3

Depreciation& amortisation 12 13 19 24 29 34EBIT 41 51 65 65 87 107% chg 16.8 24.5 28.1 0.1 33.6 22.4

(% of Net Sales) 10.3 10.7 11.5 10.4 11.5 11.6

Interest & other charges 3 2 16 22 22 22

Other income 0 0 - 1 1 1

(% of PBT) 0.4 0.1 0.0 1.8 1.3 1.0

Share in profit of Associates - - - - - -

Recurring PBT 43 57 51 48 70 90PBT (reported) 43 57 51 48 70 90Tax 1 5 5 6 14 18

(% of PBT) 2.4 9.7 9.6 11.8 20.0 20.0

PAT (reported) 42 51 46 43 56 72Add: Share of earnings of asso. - - - - - -

Less: Minority interest (MI) - - - - - -

Prior period items - - - - - -

PAT after MI (reported) 42 51 46 43 56 72ADJ. PAT 42 51 46 43 56 72% chg 33.5 21.5 (9.2) (7.9) 31.9 27.9

(% of Net Sales) 10.5 10.7 8.1 6.8 7.4 7.8

Basic EPS (`) 4.6 5.5 5.0 4.6 6.1 7.8Fully Diluted EPS ( ) 4.6 5.5 5.0 4.6 6.1 7.8% chg 33.5 21.5 (9.2) (7.9) 31.9 27.9


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Balance Sheet (Consolidated)

Y/E March (`cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity share capital 12 12 12 18 18 18

Reserves & surplus 298 338 372 396 440 500

Shareholders funds 311 350 385 414 459 519Minority Interest - - - 0 - 1Total loans 66 77 114 90 170 180

Other Long Term Liabilities 9 9 9 9 9

Long Term Provisions 3 5 7 7 7

Deferred tax liability 24 26 29 35 35 35

Total liabilities 401 465 542 555 663 734APPLICATION OF FUNDSGross block 268 299 404 452 512 572

Less: acc. depreciation 70 83 102 126 154 188

Net block 197 216 302 327 358 384Capital work-in-progress 31 53 33 33 33 33

Goodwill - - - 0 0 0

Investments 0 0 0 0 0 0Long Term Loans And Adv. 69 55 57 75 90

Current assets 251 226 267 273 385 454

Cash 38 27 10 12 15 5

Loans & advances 53 69 38 41 76 92

Other 160 130 219 220 294 357

Current liabilities 78 98 114 134 188 227Net current assets 173 128 152 139 198 227Mis. Exp. not written off 0 0 0 0 - -

Total assets 401 465 542 555 663 734


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May 30, 2013 9

Cash Flow Statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EProfit before tax 43 57 51 48 70 90

Depreciation 12 13 19 24 29 34

(Inc)/Dec in working capital 1 35 (28) 13 (74) (55)

Less: Other income 0 0 - 1 1 1

Direct taxes paid 8 4 1 6 14 18

Cash Flow from Operations 48 101 41 79 10 50(Inc.)/Dec.in fixed assets (48) (54) (84) (49) (60) (60)

(Inc.)/Dec. in investments - - 0 - - -

Other income 0 0 - 1 1 1

Cash Flow from Investing (48) (54) (84) (48) (59) (59)Issue of equity - - - - - -

Inc./(Dec.) in loans 13 23 39 (22) 80 10

Dividend Paid (Incl. Tax) (3) (10) (12) (12) (12) (12)

Others (2) (70) 14 3 (16) 1Cash Flow from Financing 8 (57) 41 (30) 52 (1)Inc./(Dec.) in Cash 9 (10) (2) 1 3 (10)

Opening Cash balances 29 38 27 10 12 15Closing Cash balances 38 27 10 12 15 5


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Key Ratios

Y/E March FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 13.8 11.4 12.5 13.6 10.3 8.1

P/CEPS 10.7 9.0 8.9 8.7 6.8 5.5

P/BV 1.9 1.7 1.5 1.4 1.3 1.1

Dividend yield (%) 1.5 1.8 1.2 1.7 1.7 1.7

EV/Sales 1.5 1.3 1.2 1.1 1.0 0.8

EV/EBITDA 11.5 9.8 8.1 7.4 6.3 5.4

EV / Total Assets 1.5 1.4 1.3 1.2 1.1 1.0

Per Share Data (`)EPS (Basic) 4.6 5.5 5.0 4.6 6.1 7.8

EPS (fully diluted) 4.6 5.5 5.0 4.6 6.1 7.8

Cash EPS 5.9 7.0 7.1 7.2 9.2 11.5

DPS 0.9 1.1 0.7 1.1 1.1 1.1

Book Value 33.7 38.0 41.8 44.9 49.8 56.3Dupont AnalysisEBIT margin 10.3 10.7 11.5 10.4 11.5 11.6

Tax retention ratio 97.6 90.3 90.4 88.2 80.0 80.0

Asset turnover (x) 1.2 1.2 1.2 1.2 1.3 1.3

ROIC (Post-tax) 11.7 11.7 12.2 10.8 11.8 12.5

Cost of Debt (Post Tax) 4.7 3.0 15.5 18.9 13.5 10.0

Leverage (x) 0.1 0.1 0.2 0.2 0.3 0.3

Operating ROE 12.4 12.7 11.6 8.9 11.4 13.3

Returns (%)ROCE (Pre-tax) 10.8 11.8 13.0 11.9 14.3 15.3Angel ROIC (Pre-tax) 12.7 14.2 14.8 13.0 15.5 16.3

ROE 14.3 15.5 12.6 10.7 12.9 14.7

Turnover ratios (x)Asset Turnover (Gross Block) 1.6 1.7 1.6 1.5 1.6 1.7

Inventory / Sales (days) 55 53 56 52 61 59

Receivables (days) 86 75 71 66 77 75

Payables (days) 39 40 47 43 50 50

WC cycle (ex-cash) (days) 123 89 78 78 74 80

Solvency ratios (x)Net debt to equity 0.1 0.1 0.3 0.2 0.3 0.3

Net debt to EBITDA 0.5 0.8 1.2 0.9 1.3 1.2

Interest Coverage (EBIT / Int.) 14.1 21.2 4.0 3.0 4.0 4.9


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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

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risks of such an investment.

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investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

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sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Disclosure of Interest Statement Indoco Remedies

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below`

1 lakh for Angel, its Group companies and Directors

indoco remedies 4q fy 2013

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