Indoco Remedies posted lower than expected numbers for 2QFY2016. The
company posted a 9.4% yoy growth in sales to Rs248cr V/s Rs272cr expected and
V/s Rs226cr in 2QFY2015, on back of domestic and exports posting a growth of
1.2% and 23.6% respectively. On the operating front, the EBITDA margin came in
at 15.5% V/s 20.9% expected and V/s 20.6% in 2QFY2015, on back of lower
than expected sales and 28.3% yoy and 82.6% yoy rise in staff expenditure and
R&D expenditure, respectively. The R&D expenditure during the quarter was 3.6%
of sales V/s 2.2% of sales in 2QFY2015. Thus, the Adj. net profit came in at
Rs22.6cr V/s Rs33.4cr expected and V/s Rs22.4cr in 2QFY2015, a yoy growth of
0.9%. The lower than expected net profit is on back of lower than expected sales
and OPM. On back of valuations, we maintain our Neutral stance on the stock.
Results lower than expected: The company posted lower than expected numbers
for 2QFY2016. The company posted a 9.4% yoy growth in sales to Rs248cr V/s
Rs272cr expected and V/s Rs226cr in 2QFY2015, on back of domestic and exports
posting a growth of 1.2% and 23.6% respectively. On the operating front, the
EBITDA margin came in at 15.5% V/s 20.9% expected and V/s 20.6% in
2QFY2015, on back of lower than expected sales and 28.3% yoy and 82.6% yoy
rise in staff expenditure and R&D expenditure, respectively. The R&D expenditure
during the quarter was 3.6% of sales V/s 2.2% of sales in 2QFY2015. Thus, the
Adj. net profit came in at Rs22.6cr V/s Rs33.4cr expected and V/s `22.4cr in
2QFY2015, a yoy growth of 0.9%. The lower than expected net profit is on back
of lower than expected sales and OPM
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 32.4x and 22.4x its FY2016E and FY2017E earnings,
respectively. We recommend a Neutral rating on the stock, given the valuations.
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