Stock Market Result Update on Indoco Remedies for 2QFY2012

Stock Market Result Update on Indoco Remedies for 2QFY2012 with a Buy recommendation and a Target Price of `583 (12 months).

For 2QFY2012, Indoco Remedies (Indoco) declared in-line results at the revenue front, reporting growth of 9.4% yoy. However, on the net profit front, growth came in lower than expected, declining by 9.4% yoy. This was mainly on account of OPM declining by 95bp yoy to 12.4% (13.4%), lower than our estimates. The domestic formulation segment grew moderately by 5.3% yoy during the quarter, contributing 64.4% to the total revenue, whereas formulations exports increased by 23.6% yoy. We recommend Buy on the stock.

Domestic segment disappoints: Indoco reported net sales of `145cr (`132cr), up 9.4% yoy, almost in-line with our expectation of `148cr for 2QFY2012, mainly on account of lower sales from the domestic high-margin formulations segment. Gross margin came in at 54.2%, in-line with 2QFY2011. OPM decreased by 95bp yoy to 12.4% (13.4%). Net profit for the quarter came in at `13.8cr, 23.7% below our estimate of `18.1cr.

Outlook and valuation: We expect net sales to post a 19.6% CAGR to `685cr and EPS to post a 15.6% CAGR to `55.5 over FY2011-13E. At `373, the stock is trading at 8.8x and 6.7x FY2012E and FY2013E earnings, respectively. We recommend Buy on the stock with a revised target price of `583.