Indoco Remedies: All segments deliver
Indoco Remedies Limited has announced its 2QFY11 results. The company has reported 41% YoY and 65% YoY growth in sales and net profits respectively. Here is our analysis of the results.
| Performance summary |
- Revenues grow by a robust 41% YoY during 2QFY11 owing to strong growth in sales from both the domestic and the exports formulations businesses.
- Operating margins improved by 1.8% due to lower staff costs and other expenditure (as percentage of sales).
- Led by the strong growth in sales and net profits, bottomline grows by 65% YoY.
| (Rs m) | 2QFY10 | 2QFY11 | Change | 1HFY10 | 1HFY11 | Change |
| Net sales | 961 | 1,354 | 41.0% | 1,967 | 2,483 | 26.2% |
| Expenditure | 830 | 1,146 | 38.1% | 1,627 | 2,084 | 28.1% |
| Operating profit (EBIDTA) | 131 | 208 | 59.3% | 340 | 399 | 17.4% |
| Operating profit margin (%) | 13.6% | 15.4% | 17.3% | 16.1% | ||
| Other income | 1 | 0 | 1 | 0 | -92.9% | |
| Depreciation | 29 | 34 | 15.9% | 57 | 66 | 15.5% |
| Interest | 7 | 5 | -19.7% | 16 | 12 | -25.8% |
| Profit before tax | 96 | 170 | 76.9% | 269 | 322 | 19.7% |
| Tax | 3 | 17 | 400.0% | 7 | 21 | 182.4% |
| Profit after tax/ (loss) | 93 | 153 | 65.0% | 261 | 301 | 15.1% |
| Net profit margin (%) | 9.6% | 11.3% | 13.3% | 12.1% | ||
| No. of shares (m) | 12.3 | 12.3 | ||||
| Diluted earnings per share (Rs)* | 37.5 | |||||
| P/E ratio (x) | 12.7 |
| What has driven performance in 2QFY11? |
- Indoco’s 41% YoY growth in sales during the second quarter was driven by both the domestic and the exports formulations businesses. Sales from the domestic formulations business grew by a robust 37% YoY. The therapeutic areas which contributed to the growth of this business were ophthalmology, vitamins & minerals, respiratory and pain management.
- Performance on the exports formulations front was also healthy with sales growing by a robust 39% YoY during the quarter. While exports to the regulated markets grew by 20% YoY, those to the semi regulated markets registered a robust 140% YoY growth. Growth in the latter was mainly led by Africa, Asia and Latin America. Indoco, meanwhile, strengthened its relationship with US based Watson by expanding its product development and supply pipeline by four more products. The current market size of these four products has been pegged at US$ 765 m. The partnership with Watson now covers a total of 10 products and will be the key growth driver as far as the US is concerned.
- Indoco had also signed a contract with South Africa’s largest pharma company called Aspen Pharmacare in FY10. This deal encompasses 7 ophthalmic products covering 30 emerging markets. Indoco will offer these products for registration and supply the same from their US FDA approved plants. Aspen will market and distribute these products on receiving approval. This deal is expected to give a major boost to Indoco’s contract manufacturing business.
- As far as the emerging markets are concerned, Indoco registered 11 products across various markets during the quarter. These products are expected to be commercialized in the third quarter of this fiscal thereby giving a further boost to revenues from the emerging markets.
Consolidated snapshot (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change Domestic Formulations 645 884 37.2% 1,323 1,610 21.7% APIs 19 36 85.4% 43 65 51.6% Total domestic (i) 664 920 38.6% 1,366 1,675 22.7% Exports Formulations 260 353 35.4% 530 681 28.5% - Regulated 227 271 19.7% 451 522 15.6% - Semi-Regulated 34 82 140.4% 79 160 102.4% APIs 30 51 69.6% 42 81 93.1% Total exports (ii) 290 403 39.0% 572 762 33.2% Grand Total (i+ii) 954 1,323 38.7% 1,938 2,437 25.8% - As far as the emerging markets are concerned, Indoco registered 11 products across various markets during the quarter. These products are expected to be commercialized in the third quarter of this fiscal thereby giving a further boost to revenues from the emerging markets.
| What to expect? |
However, cut throat competition in the domestic market, pricing pressure in the global generics market, sharp fluctuations in currency movement and regulatory changes both in the domestic and international markets could dampen Indoco’s performance. Overall, we maintain our positive view on the stock from a long term perspective.
