Technology

Indoco Remedies (Indoco) results for 4QFY2016 have come in much below our
expectations. The company posted a 20.5% yoy growth in sales to Rs255cr,
although the same is lower than our expectation of Rs300cr. The growth was
mainly driven by exports (Rs117.8cr), which grew by 43.8% yoy, while domestic
sales (Rs136.3cr) rose 5.6% yoy. On the operating front, the EBDITA margin for the
quarter came in at 12.7% V/s 18.4% in 4QFY2015. The reported net profit came
in at Rs20cr V/s Rs18.8cr in 4QFY2015, registering a yoy growth of 6.7%. We
recommend a SELL on the stock, on back of the valuations.
Results lower than expected: The company posted a 20.5% yoy growth in sales for
the quarter to Rs255cr, although the same is lower than our expectation of
Rs300cr. The growth was mainly driven by exports (Rs117.8cr), which grew by
43.8% yoy, while domestic sales (Rs136.3cr) rose 5.6% yoy. Export sales were
driven by a 47.3% yoy growth in Formulation exports (Rs110.5cr) while domestic
formulation sales (Rs130.8cr) rose 6.4% yoy. On the operating front, the gross
margin for the quarter came in at 67.7% V/s 67.6% in 4QFY2015, while the
EBDITA margin came in at 12.7% V/s 18.4% in 4QFY2015.The reported net profit
came in at Rs20cr V/s Rs18.8cr in 4QFY2015, i.e. a yoy growth of 6.7%. This was
however lower than our expectation of a net profit of Rs35cr for the quarter.
Outlook and valuation: We expect net sales to post a 14.9% CAGR to Rs1,289cr
and EPS to post a 31.5% CAGR to Rs15.6 over FY2016-18E. At the current market
price, the stock is trading at 21.3x and 18.1x its FY2017E and FY2018E earnings,
respectively. We recommend a SELL, given the expensive valuations.

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