Indoco ru2 qfy2011-251010

Please refer to important disclosures at the end of this report 1
Y/E March (` cr) 2QFY2011 1QFY2011 % chg (qoq) 2QFY2010 % chg (yoy)
Net sales 132 111 18.8 95 38.7
Other operating income 3 1 108.1 1 342.9
Gross profit 72 63 14.5 55 31.4
Operating profit 18 18 0.8 12 43.2
Net profit 15 15 2.9 9 65.9
Source: Company, Angel Research
Indoco Remedies (Indoco) reported strong growth on the sales front, driven by
domestic sales. Further, during 2QFY2011, the company expanded its supply
agreements with Aspen and Watson to cover new products. While Aspen contract
is expected to commence contribution from FY2012, Watson contract is expected
to commercialise from FY2013. We recommend Accumulate on the stock, as
Indoco’s long-term drivers are intact (domestic segment: 120 products, 1,500MR;
and export segment: long-term supply agreement with Watson and Aspen).
Revenue beats estimates, domestic segment surprises: For 2QFY2011, Indoco
reported net sales of `132cr (`95cr), up 38.7% yoy, which were above
expectations due to higher-than-expected sales on the domestic formulation front.
Domestic formulation sales grew by 37.2% yoy due to strong traction witnessed in
the respiratory, anti-infective and gastro-intestinal segments. Indoco reported
OPM of 13.4% (13.0%) during the quarter, which was flat yoy, impacted by
higher raw-material cost. The company reported net profit of `15cr, which was
primarily in line with estimates on the back of lower OPM and higher tax charges.
Outlook and valuation: We expect net sales to post a 21.7% CAGR to `590cr and
EPS to register a 25.7% CAGR to `54.1 over FY2010–12E. The stock is trading at
12.1x and 9.3x FY2011E and FY2012E earnings, respectively. We recommend an
Accumulate rating on Indoco with a Target Price of `541.
Key financials (Consolidated)
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E
Net sales 351 398 473 590
% chg 33.5 13.6 18.8 24.5
Net profit 31.5 42.1 51.5 66.5
% chg 4.5 33.7 22.3 29.2
EPS (`) 25.6 34.2 41.9 54.1
EBITDA margin (%) 13.2 13.3 15.4 17.1
P/E (x) 19.8 14.8 12.1 9.3
RoE (%) 11.8 14.3 15.8 18.2
RoCE (%) 10.5 10.8 13.3 16.8
P/BV (x) 2.2 2.0 1.8 1.6
EV/Sales (x) 1.8 1.6 1.5 1.2
EV/EBITDA (x) 14.0 12.2 9.6 7.1
ACCUMULATE
CMP `506
Target Price `541
Investment Period 12 Months
Stock Info
Sector
Bloomberg Code INDR@IN
Shareholding Pattern (%)
Promoters 61.0
MF / Banks / Indian Fls 12.6
FII / NRIs / OCBs 3.7
Indian Public / Others 22.8
Abs. (%) 3m 1yr 3yr
Sensex 12.0 20.8 8.2
Indoco 17.5 89.4 79.4
Face Value (`)
BSE Sensex
Nifty
Reuters Code
Pharmaceutical
Avg. Daily Volume
Market Cap (` cr)
Beta
52 Week High / Low
10
20,303
6,106
INRM.BO
621
0.7
523/240
9328
Sarabjit Kour Nangra
+91 22 4040 3800 Ext: 343
sarabjit@angelbroking.com
Sushant Dalmia, CFA
+91 22 4040 3800 Ext: 320
sushant.dalmia@angelbroking.com
Indoco Remedies
Performance Highlights
2QFY2011 Result Update | Pharmaceutical
October 25, 2010

Indoco Remedies | 2QFY2011 Result Update
October 25, 2010 2
Exhibit 1: 2QFY2011 performance
Y/E March (` cr) 2QFY2011 1QFY2011 % chg (qoq) 2QFY2010 % chg (yoy) 1HFY2011 1HFY2010 % chg
Net sales 132 111 18.8 95 38.7 244 194 25.8
Other income 3 1 108.1 1 342.9 5 3 0.5
Total income 135 113 20.0 96 248 197 26.2
Gross profit 72 63 14.5 55 31.4 135 113 19.4
Gross margins (%) 54.2 56.3 57.3 55.2 58.2
Operating profit 18 18 0.8 12 43.2 35 31 13.9
OPM (%) 13.4 15.8 13.0 14.5 16.0
Interest 1 1 (18.5) 1 (19.7) 1 2 (25.8)
Dep. & amortisation 3 3 4.4 3 15.9 7 6 15.5
PBT 14 14 0.9 9 56.9 32 27 20.0
Provision for taxation 1.7 0.4 335.9 0.3 400.0 2.1 0.7 182.4
Reported net profit 15 15 2.9 9 65.9 30 26 15.4
Less : Exceptional items 0 0 - 0 0 0
PAT after exceptional items 15 15 2.9 9 65.9 30 26 15.4
EPS (`) 12.4 12.1 7.5 24.5 21.2
Exhibit 2: 2QFY2011 – Actual v/s Angel estimates
` cr Actual Estimate Variation (%)
Net sales 132 113 17.1
Other operating income 3 2 55.0
Operating profit 18 18 0.6
Tax 2 1 240.0
Net profit 15 14 6.6
Revenue beats estimates, domestic segment surprises: For 2QFY2011, Indoco
reported net sales of `132cr (`95cr), up 38.7% yoy, which were above
expectations due to higher-than-expected sales on the domestic formulation front.
Domestic formulation sales grew by 37.2% yoy to `88cr (`66cr) on the back of
strong traction witnessed in the respiratory, anti-infective and gastro-intestinal
segments. The company witnessed strong growth across key brands Cyclopam,
Febrex plus and Sensodent-K.

October 25, 2010 3
Exhibit 3: Domestic formulation sales trend
On the export front, the company’s sales grew by strong 39.0% yoy to `40cr
(`29cr), driven by the semi-regulated formulation and API segments. The
semi-regulated formulation segment grew by 140.4% yoy to `8cr (`3cr), driven by
African and Latin American markets; while the regulated formulation segment
grew by 19.7% yoy to `27cr (`23cr), driven by the UK market. On the API front,
sales grew by 69.6% yoy to `5cr (`3cr).
Exhibit 4: Export sales trend
OPM impacted by higher raw-material cost: Indoco reported OPM of 13.4%
(13.0%) during the quarter, which was flat yoy, impacted by higher raw-material
cost. Gross margin during the quarter contracted by 301bp yoy to 54.2% (57.3%),
while employee expenses increased by 28.2% yoy to `19cr (`15cr).
66 67
72 73
88
50
60
70
80
90
100
2QFY2010 3QFY2010 4QFY2010 1QFY2011 2QFY2011
(`cr)
29
27
34
36
40
0
5
10
15
20
25
30
35
40
45
`cr

October 25, 2010 4
Exhibit 5: OPM trend
Net profit in line with estimates: Indoco reported net profit of `15cr, which was
primarily in line with our estimates on the back of lower OPM and higher tax
charges. Indoco has stopped availing full MAT credit, as the company would be
utilising it in future as 1) contribution from non- tax free zone Goa and Waluj plant
starts increasing and 2) the Baddi plant would come out of 100% tax exemption in
FY2011 and will be under 30% exemption.
Exhibit 6: Net profit trend
13.0
12.9 10.1
13.4 13.4
0.0
4.0
8.0
12.0
16.0
%
9
8 8
15 15
0
5
10
15
20
(`cr)

October 25, 2010 5
Concall takeaways
For FY2011, management reiterated guidance on the domestic formulation
business of 20–25% growth, while exports are expected to register 30–35%
yoy growth, which would result in composite top-line growth of 21–26%, with
OPM in the range of 18–19%.
During the quarter, the company extended its supply agreements with Aspen
and Watson. The Aspen contract, in addition to ophthalmic products covered
earlier, now extends to a number of products to cater to Latin America and
African markets. The company expects supply under the contract to begin in
FY2012. On the Watson front, the supply agreement has been extended by
four more products to 10 products now, having a market size of US $1.5bn.
The Watson contract is expected to contribute meaningfully from FY2013.
Indoco has invested `48cr in Goa facility and expects trial production to begin
from 4QFY2011. Through this facility, the company’s tablet production
capacity would increase by 40% to 10bn tablets per annum.
Indoco has been able to reduce its domestic debtor days from 82 days in
FY2010 to 78 days as of September 2010.

October 25, 2010 6
Recommendation rationale
Domestic formulations back on the growth trajectory: Indoco has a strong brand
portfolio of 120 products and a base of 1,500MR. The company operates in
various therapeutic segments, including anti-infective, anti-diabetic, CVS,
ophthalmic, dental care, pain management and respiratory. Indoco’s prominent
brands include Cyclopam, Vepan, Febrex plus, ATM, Sensodent-K and Sensoform.
The company’s top 10 brands contribute 60% to domestic sales. Post the
restructuring of the domestic business in FY2009, which resulted in an improved
working capital cycle, Indoco is back on the growth trajectory with its domestic
formulation business outpacing the industry’s growth rate in the last two quarters.
Indoco has witnessed strong growth across the respiratory, anti-infective,
ophthalmic and alimentary therapeutic segments. Further, management plans to
increase its sales force by 200MR in FY2011 to expand its penetration in
tier- II/rural markets.
Scaling-up on the export front: Indoco has also started focusing on regulated
markets by entering into long-term supply contracts. The company is currently
executing several contract manufacturing projects covering a number of products
for its clients in the UK, Germany and Slovenia. Management plans to incur capex
of `95cr (34% of FY2010 GFA) for building formulation facilities in Goa and Waluj
funded through debt and internal accruals to cater to higher export demand.
Watson and Aspen contracts to provide long-term growth: Indoco has entered into
supply agreements for ophthalmic products with Watson (US market) and
Aspen Pharma (emerging markets). We expect milestone payments from the
contracts to commence from FY2011 on successful regulatory filings and
substantial revenue flow from the deal to commence from FY2013.
Outlook and valuation: We have revised our estimates for FY2011 and FY2012 to
factor in higher growth on the domestic and export (Aspen contract contribution)
fronts and higher tax charges.
We expect net sales to post a 21.7% CAGR to `590cr and EPS to register a 25.7%
CAGR to `54.1 over FY2010–12E. The stock is trading at 12.1x and 9.3x FY2011E
and FY2012E earnings, respectively. We recommend an Accumulate rating on
Indoco, as the company’s long-term drivers are intact (domestic segment: 120
products, 1,500MR; and export segment: long-term supply agreement with
Watson and Aspen), with a Target Price of `541.

October 25, 2010 7
Exhibit 7: Key assumptions
Earlier estimates Revised estimates
FY2011E FY2012E FY2011E FY2012E
Domestic sales growth (%) 14.5 12.9 19.5 18.5
Export sales growth (%) 25.3 29.4 29.6 38.3
Growth in employee expenses (%) 12.9 13.8 17.4 15.6
Operating margins (%) 15.4 16.6 15.4 17.1
Capex (` cr) 80.0 50.0 80.0 59.0
Exhibit 8: Change in estimates
Particulars (` cr) FY2011 FY2012
Earlier
estimates
Revised
estimates % chg
Earlier
estimates
Revised
estimates % chg
Sales 455 473 4.0 543 590 8.6
Operating profit 70 73 4.1 89 101 13.5
Prov. for tax 5 6 28.8 3 16 423.6
Net profit 49 51 5.0 67 67 (0.7)
Exhibit 9: One-year forward PE band
-
100
200
300
400
500
600
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
12x
3x
9x
6x
(`)

October 25, 2010 8
Exhibit 10: Recommendation summary
Company Reco CMP Tgt Price Upside FY2012E FY10-12E FY2012E
(`) (`) % PE (x)
EV/Sales
(x)
EV/EBITDA
(x)
CAGR in
EPS (%)
RoCE ROE
Alembic Neutral 73 - - 11.5 0.9 7.7 46.4 14.8 18.5
Aurobindo Pharma Accumulate 1,208 1,330 10.1 11.1 1.9 9.1 4.7 15.5 24.1
Aventis* Under review 1,830 - - 19.9 2.8 15.4 16.1 18.0 18.9
Cadila Healthcare Neutral 715 - - 18.0 2.9 14.0 26.6 26.0 34.7
Cipla Neutral 353 - - 20.6 4.0 18.7 12.8 16.0 18.9
Dr Reddy's Neutral 1,638 - - 21.0 2.6 13.6 99.8 23.8 25.5
Dishman Pharma Buy 183 279 52.3 8.5 1.6 6.2 21.7 12.5 16.8
GSK Pharma* Under review 2,354 - - 31.9 7.3 20.7 11.0 38.7 28.9
Indoco Remedies Accumulate 506 541 6.9 9.3 1.2 7.1 25.7 16.8 18.2
Ipca labs Neutral 304 - - 13.2 1.9 9.1 18.7 23.3 25.1
Lupin Neutral 455 - - 19.5 3.1 16.1 23.2 23.9 31.2
Orchid Chemicals Neutral 332 - - 19.4 2.2 12.0 - 7.0 13.0
Piramal Healthcare Neutral 495 - - 14.6 2.3 10.8 21.1 25.4 32.7
Ranbaxy* Neutral 612 - - 21.3 2.6 13.4 102.0 18.8 20.2
Sun Pharma Neutral 2,139 - - 25.2 7.0 20.8 14.0 16.4 17.7
Source: Company, Angel Research; * December ending

October 25, 2010 9
Profit & Loss Statement (Consolidated)
Y/E March (`) FY2007 *FY2008 FY2009 FY2010 FY2011E FY2012E
Gross sales 344 272 355 402 480 597
Less: Excise duty 18 9 5 4 6 8
Net Sales 326 263 351 398 473 590
Other operating income 1 1 2 5 4 6
Total operating income 326 264 352 403 478 596
% chg 34.1 (19.2) 33.6 14.4 18.5 24.8
Total Expenditure 267 220 304 345 400 489
Net Raw Materials 143 113 150 174 204 252
Other Mfg costs 22 26 38 46 28 35
Personnel 34 32 48 56 66 77
Other 67 49 68 69 101 124
EBITDA 59 43 46 53 73 101
% chg 23.1 (27.6) 8.1 14.9 37.2 38.5
(% of Net Sales) 18.1 16.3 13.2 13.3 15.4 17.1
Depreciation& Amortisation 9 8 11 12 16 18
EBIT 50 35 35 41 57 83
% chg (63.2) (30.1) 0.3 16.9 39.3 44.6
(% of Net Sales) 15.4 13.3 10.0 10.3 12.1 14.0
Interest & other Charges 5 4 6 3 6 9
Other Income 2 2 2 0 2 2
(% of PBT) 4.6 4.4 7.0 0.4 3.5 2.4
Recurring PBT 48 34 33 43 58 82
% chg 235.0 (29.3) (2.1) 29.9 34.3 42.0
Extraordinary Expense/(Inc.) 1.6 1.8 - - - -
PBT (reported) 46 32 33 43 58 82
Tax 5 2 2 1 6 16
(% of PBT) 9.9 6.1 5.1 2.4 11.1 19.1
PAT (reported) 42 30 31 42 51 67
PAT after MI (reported) 42 30 31 42 51 67
ADJ. PAT 43 32 31 42 51 67
% chg 28.5 (26.3) (1.4) 33.7 22.3 29.2
(% of Net Sales) 12.8 11.5 9.0 10.6 10.9 11.3
Basic EPS (`) 35.6 24.5 25.6 34.2 41.9 54.1
Fully Diluted EPS (`) 35.6 24.5 25.6 34.2 41.9 54.1
% chg 29.3 (31.1) 4.4 33.8 22.3 29.2

October 25, 2010 10
Balance Sheet (Consolidated)
SOURCES OF FUNDS
Equity Share Capital 12 12 12 12 12 12
Reserves& Surplus 221 242 266 298 329 379
Shareholders’ Funds 233 254 278 310 341 392
Total Loans 36 34 56 66 86 101
Deferred Tax Liability 21 22 23 24 30 33
Total Liabilities 289 310 357 400 456 525
APPLICATION OF FUNDS
Gross Block 207 219 234 268 353 412
Less: Acc. Depreciation 40 47 58 70 86 104
Net Block 167 172 176 197 267 307
Capital Work-in-Progress 2 2 16 31 26 26
Investments 0.0 0.0 0.0 0.2 0.2 0.2
Current Assets 178 199 223 251 247 307
Cash 15 16 29 38 10 9
Loans & Advances 21 31 42 53 57 71
Other 142 152 153 160 180 227
Current liabilities 58 63 59 78 83 114
Net Current Assets 120 137 165 172 164 192
Mis. Exp. not written off 1 0 0 0 0 0
Total Assets 289 310 357 400 456 525
Cash Flow Statement (Consolidated)
Profit before tax 48 34 33 43 58 82
Depreciation 9 8 11 12 16 18
(Inc)/Dec in Working Capital (48) (8) (5) 1 (19) (29)
Less: Other income 2 2 2 0 2 2
Direct taxes paid 4 7 5 8 10 12
Cash Flow from Operations 3 26 32 48 42 57
(Inc.)/Dec.in Fixed Assets (15) (15) (30) (48) (80) (59)
(Inc.)/Dec. in Investments (2) (0) - - - 0
Other income 2 2 2 0 2 2
Cash Flow from Investing (15) (14) (28) (48) (78) (57)
Issue of Equity - - - - - -
Inc./(Dec.) in loans 5 (1) 21 13 20 15
Dividend Paid (Incl. Tax) (8) (9) (12) (3) (12) (16)
Others 1 (1) (1) (2) - -
Cash Flow from Financing (2) (11) 8 8 8 (1)
Inc./(Dec.) in Cash (14) 1 13 9 (28) (0)
Opening Cash balances 30 15 16 29 38 10
Closing Cash balances 15 16 29 38 10 9

October 25, 2010 11
Key Ratios
Y/E March FY2007 *FY2008 FY2009 FY2010 FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 14.2 20.6 19.8 14.8 12.1 9.3
P/CEPS 11.8 16.4 14.6 11.5 9.2 7.3
P/BV 2.6 2.4 2.2 2.0 1.8 1.6
Dividend yield (%) 1.3 1.0 1.0 1.4 1.7 2.1
EV/Sales 1.9 2.4 1.8 1.6 1.5 1.2
EV/EBITDA 10.5 15.0 14.0 12.2 9.6 7.1
EV / Total Assets 2.1 2.1 1.8 1.6 1.5 1.4
Per Share Data (`)
EPS (Basic) 35.6 24.5 25.6 34.2 41.9 54.1
EPS (fully diluted) 35.6 24.5 25.6 34.2 41.9 54.1
Cash EPS 43.0 30.8 34.7 44.1 54.7 69.1
DPS 6.8 5.0 5.1 7.0 8.4 10.8
Book Value 197.1 206.9 226.6 252.7 277.5 318.7
DuPont Analysis
EBIT margin 15.4 13.3 10.0 10.3 12.1 14.0
Tax retention ratio 90.1 93.9 94.9 97.6 88.9 80.9
Asset turnover (x) 1.5 0.9 1.1 1.2 1.2 1.2
ROIC (Post-tax) 20.2 11.6 10.7 11.7 12.7 14.0
Cost of Debt (Post Tax) 12.8 9.7 12.4 4.7 6.6 7.6
Leverage (x) 0.6 0.1 0.1 0.1 0.2 0.2
Operating ROE 24.3 11.8 10.6 12.4 13.6 15.5
Returns (%)
ROCE (Pre-tax) 20.5 11.7 10.5 10.8 13.3 16.8
Angel ROIC (Pre-tax) 22.7 12.4 11.6 12.7 15.2 18.1
ROE 20.1 13.1 11.8 14.3 15.8 18.2
Turnover ratios (x)
Asset Turnover (Gross Block) 1.9 1.2 1.6 1.6 1.5 1.6
Inventory / Sales (days) 41 57 50 55 54 50
Receivables (days) 105 110 108 86 76 75
Payables (days) 50 56 41 39 40 40
WC cycle (ex-cash) (days) 134 156 133 122 110 103
Solvency ratios (x)
Net debt to equity 0.1 0.1 0.1 0.1 0.2 0.2
Net debt to EBITDA 0.3 0.4 0.6 0.5 1.0 0.9
Interest Coverage (EBIT / Int.) 9.8 9.7 6.0 14.1 10.2 9.4
Note: *For Nine months ended March 31st 2008

October 25, 2010 12
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
the past.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please
refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and
its affiliates may have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement Indoco Remedies
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

Indoco ru2 qfy2011-251010

Recommended

Recommended

More Related Content

What's hot

What's hot (17)

Similar to Indoco ru2 qfy2011-251010

Similar to Indoco ru2 qfy2011-251010 (20)

More from Angel Broking

More from Angel Broking (20)

Recently uploaded

Recently uploaded (20)

Indoco ru2 qfy2011-251010