Indoco Remedies Ltd (IRL) has a strong brand portfolio of 120 products across various therapeutic segments with its top 10 brands contributing about 60% to its domestic sales. IRL is looking to expand its presence in other regulated markets like US and has tied up with Watson Pharma, US (19 sterile products targeting US$1.9bn). So far, IRL has filed 13 ANDAs, of this, 8 were filed under the Watson deal. It is planning to further file 4-5 ANDAs in FY2013. IRL has also got into an agreement with Aspen Pharma for Emerging Markets (30 markets). IRL has entered into an alliance with DSM, a €9 billion company, for marketing & distribution of APIs. Further, IRL is also looking at additional supply tie ups coming in from Australia and expects exports business to grow between 25-30% CAGR over the next 2-3 years and contribute close to 50% of the revenues;
IRL intends to increase its presence in the rural market and launch around 25 new products every year, largely on the chronics side, taking the revenue contribution in chronic segment from 10% to 20% in few years. IRL expects to post better than industry growth rates at a CAGR of 16% over the next 2-3 years and has undertaken certain cost cutting measures in the domestic business which would improve profit margins by about 200bps going forward;
IRL is investing Rs.55 crore in the Patalganga facility and is expecting an FDA approval in this year, which would be an additional growth trigger for the firm as it would enable the company to grow its API business in the higher margin regulated markets. At full capacity IRL expects this increased capacity to yield close to Rs.200 crore in revenues post the approval;
IRL currently has close to Rs.94 crore of debt on its balance sheet. Of this Rs.35 crore is long term (mainly dollar denominated) in nature while Rs.59 crore is short term debt (a mix of INR and USD loans). The current debt/equity ratio is a comfortable 0.23x as on September 30, 2012;
We believe that the firm is well poised to grow its revenue CAGR at 15% plus for the period FY2012-14E and with expected improvement in margins we believe that the PAT CAGR would be in excess of 15%. Improved traction in the domestic business coupled with growth driver in international business coming from new tie ups and new facility at Patalganga would help IRL to re-rate closer to the large-cap pharma companies which are trading at an average of 18x one year forward earnings. We believe that IRL could re-rate close to 10x multiple which based on EPS estimate of Rs.8.5 for FY2014E, results in a target price of Rs.85/share which implies 28.8% upside from current market price;
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