Indoco Remedies - Q4FY22 Result Update - In-line quarter; strong revenue guidance for US & EU mkt - Upgrade to 'BUY'

Mr. Param Desai - Research Analyst at Prabhudas Lilladher Pvt. Ltd.

Quick Pointers:

- Guided for 40% and 20% revenue growth in US and EU in FY23.

- Input cost to remain elevated in the near term.

Indoco Remedies' (INDR) reported robust performance in a regulated market; management expects to maintain its growth momentum given strong order book and new launches. Domestic market performed well on low base in therapies like anti-infective, Cardiac and Respiratory along with higher prescriptions. We remain structurally positive on INDR on account of 1) MR productivity enhancement and higher penetration in North and East markets 2) new launches in US and 3) higher tender business in EU market. Our FY23E and FY24E EPS stands reduced by 9% and 6% as we factor in lower margins. Given recent correction in stock price and current valuations of 14.8x P/E on FY24E are attractive, we upgrade stock to 'Buy' from Accumulate with TP of Rs430 based on 18x FY24E earnings.

Strong revenue across formulation segment: Consolidated revenues grew by 34% to Rs4.1bn vs our est of Rs3.93bn. Domestic formulations grew up 39% YoY to Rs 1.9bn higher than our estimate of Rs 1.8bn. Key therapeutic segments of INDR reported double digit growth YoY. Regulated business also grew strongly by 48% YoY to Rs1.6bn, in line with our estimate, aided by higher US sales (up 110% YoY and 42% QoQ). EM formulation grew by 29% YoY. API declined 34% YoY on account of increased captive consumption.

In-line EBIDTA; input cost pressure dragged margins: INDR registered EBITDA of Rs805mn, up 47% YoY, largely in line with our estimate. Reported OPM of 19.7%; down 83 bps QoQ. Adjusted for other operating income, margins were down 40 bps QoQ. Gross margins were down by 170bps QoQ and 300 bps YoY largely on pressure of input cost. Other expenses increased by 19% QoQ (21% YoY) largely on account of pick-up in business activities of regulated markets. R&D cost came in at 4.9% of sales; up 20% YoY. Resultant PAT grew by 62% YoY (up 23% QoQ) to Rs 405 mn, vs our est of Rs 382mn.

Key concall takeaways: (1) Strong order book across US & EU markets; Guided for revenue growth of 40% in US and 20% in EU in FY23. (2) Expect 5-6 approvals in opthal segment over next 2 years. This includes products like gCombigan expected to launch in Q2FY23. Company has got CRL which has been responded. Market size of the product is +USD400mn and likely to be second generic player. (3) Regulatory milestone in the US was Rs 180mn including profit share of Rs 40mn. (4) Domestic formulation included Rs300mn sales from COVID in FY22 and guided for +11-12% growth in FY23. New launches contributed 2% to total revs in FY22 which should further pick up in FY23. Consol price hike of +6% likely in FY23. Currently 11% of portfolio under NLEM. (5) Capex to tune of Rs 1.1bn-1.2bn in FY23 which includes Rs500-600mn of capex pertaining to opthal segment (6) API sales should normalize and grow 2x in FY23 (7) Input cost likely to stay elevated in near term and guided for ~ 69% GMs in FY23.

Shares of Indoco Remedies Limited was last trading in BSE at Rs. 370.75 as compared to the previous close of Rs. 372.30. The total number of shares traded during the day was 731 in over 144 trades.

The stock hit an intraday high of Rs. 375.25 and intraday low of 366.95. The net turnover during the day was Rs. 271406.00.