Indoco Remedies reported quarterly results slightly below expectations due to restructuring of its domestic business. Sales grew 9% to Rs 216 crore while margins improved. Exports grew 23% but was offset by weak 2% domestic growth. The company expects the domestic segment to recover in the second half of the year. For the full year, sales are expected to grow 19% overall. While the quarter saw short-term impacts of domestic restructuring, the analyst maintains a HOLD recommendation based on the company's business model and expectations for profitability and returns to further expand.

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Recommendation HOLD Temporary Blip
Indoco Remedies (IRL) reported results marginally below than expectations due
to restructuring at its domestic business. Sales grew by 9% yoy to Rs 216 cr.
EBITDA margins improved to 19.1% from 18.4% in Q1FY15. Exports revenue
continued its growth momentum and grew by 23% yoy but was offset by weak
domestic growth of 2%. However we believe that it is a temporary blip and
expect the domestic segment to bounce back in 2HFY16. For full year we expect
IRL to grow by 19%.
Key Highlights
 During the quarter the company has major restructuring in its domestic
business and realigned the product basket for better “go to market”
approach. IRL has also hired 500 MRs to align with changes. The initial set
up has impacted the growth of domestic division which grew by mere 2%.
However, we expect the segment to bounce back in 2HFY15 and expect it
to report 15% growth for the full year (from earlier expectation of 18%),
which implies 20% growth for 9MFY16.
 The company had started shipments of two products to Watson in Q4FY15
however recorded minimal sales. Being the first products in mature and
competitive market, we don’t anticipate much revenue from these two
products. The management expects one more approval to come by Dec’15.
We are projecting Rs 20 cr sales from all the three products put together in
FY16. We believe the meaningful revenues would be visible from FY17
onwards.
 Management believes the recent global acquisition of Allergan (Watson) by
Teva is “blessing in disguise” as it would now be able to launch the 4
products (of market size $1 bn) which were earlier overlapping with
Allergan portfolio.
 During the quarter, the company has signed with two US clients for 3
products for contract manufacturing kind of arrangement. Management
has not given any guidance regarding the potential from this as the onset
of revenue is still far off (it would take nine more months to file the
products). There are three more such products are in pipeline
 IRL expects to file 10 ANDAs in FY16 including both Watson (3-4) and from
its own portfolio
Valuation & Recommendation
We believe Q1 was a temporary blip and expect IRL to be on track for FY16. We
are optimistic on its business model. The company has shown impressive
improvement in the margins in recent past driven by improving efficiencies in
the domestic formulation segment and with the commencement of Watson
deal we expect profitability and return ratios to further expand. We
recommend HOLD with price target of Rs 368 (18x on FY17E).
CMP (30/7/2015) Rs 328
Target Price Rs 368
Sector Pharmaceuticals
Stock Details
BSE Code 532612
NSE Code INDOCO
Bloomberg Code INDR IN
Market Cap (Rs cr) 3022
Free Float (%) 40.75
52- wk HI/Lo (Rs) 413/190
Avg. volume NSE (Quarterly) 52430
Face Value (Rs) 2
Dividend (FY 15) 80%
Shares o/s (Cr) 9.2
Relative Performance 1Mth 3Mth 1Yr
Indoco -9.2% -5.7% 50.6%
Sensex -0.3% 2.6% 6.2%
Shareholding Pattern 30
th
June 15
Promoters Holding 59.25
Institutional (Incl. FII) 19.29
Corporate Bodies 2.71
Public & others 18.75
Runjhun Jain 022 – 39268177
Sr. Research Analyst
runjhun.jain@nirmbang.com
Year
Consolidated
Sales
(Rs cr)
Growth
(%)
EBITDA
(Rs cr)
Margin
(%)
PAT
(Rs cr)
Margin
(%)
EPS (Rs)
P/E
(x)
RoE (%)
FY14A 732.6 16.1% 120.4 16.4% 58.1 7.9% 6.3 52.0 12.7%
FY15A 857.0 0.0% 165.5 19.3% 82.8 9.7% 9.0 36.5 15.7%
FY16E 1021.7 19.2% 233.3 22.8% 131.0 12.8% 14.2 23.1 20.6%
FY17E 1299.6 27.2% 305.2 23.5% 188.6 14.5% 20.5 16.0 23.7%
200
250
300
350
400
450
30-Jul 30-Oct 30-Jan 30-Apr

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Quarterly Result
Standalone (Rs cr) Q1FY16 Q4FY15 qoq Q1FY15 yoy
Net sales 216.0 211.6 2.1 198.0 9.1
Other Op. Inc 7.4 -1.7 -542.3 0.7 992.6
Total Income 223.4 209.9 6.4 198.6 12.5
Cost of Materials 76.4 68.5 11.6 72.6 5.3
Staff cost 40.5 35.0 15.9 33.7 20.1
Other Exps 63.8 69.2 -7.7 55.8 14.5
Total Expenses 180.8 172.6 4.7 162.1 11.6
EBITDA 42.6 37.3 14.2 36.6 16.5
margins 19.7% 17.6% 18.5%
Depreciation 15.0 12.5 19.7 9.5 58.1
EBIT 27.6 24.8 11.5 27.1 2.0
Interest 2.2 2.2 -2.3 2.7 -20.9
Other income 0.2 0.4 -48.6 0.6 -69.4
PBT 25.7 22.9 11.9 25.0 2.7
Tax 5.4 4.2 28.6 5.0 8.9
Tax rate 21.0% 18.3% 19.8%
PAT 20.3 18.8 8.1 20.0 1.1
Equity Capital 18.4 18.4 18.4
FV 2.0 2.0 2.0
EPS 2.2 2.0 8.1 2.2 1.1
Revenue Breakup
Particulars Q1FY16 Q4FY15 qoq Q1FY15 yoy
Domestic 131.6 129.1 1.9 127.5 3.2
- Formulations 124.4 123.0 1.2 121.6 2.3
- API 7.0 6.1 13.8 5.9 18.7
International 83.0 81.9 1.3 70.0 18.6
- Formulations 78.0 75.0 4.0 63.4 23.1
Regulated Markets 68.7 62.4 10.1 57.3 20.0
Emerging Markets 9.3 12.7 -26.6 6.1 52.5
- API 5.0 6.8 -27.3 6.6 -24.5
Others 0.6 0.6 -3.3 0.6 5.5
Gross Sales 215.1 211.6 1.7 198.0 8.7

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Financials (consolidated)
P&L (Rs. Cr) FY14A FY15A FY16E FY17E Balance Sheet (Rs Cr) FY14A FY15A FY16E FY17E
Net Sales 732.6 857.0 1021.7 1299.6 Share Capital 18.4 18.4 18.4 18.4
% change 16.1% 0.0% 19.2% 27.2% Reserves & Surplus 438.7 508.1 617.8 775.7
EBITDA 120.4 165.5 233.3 305.2 Net Worth 457.1 526.5 636.2 794.1
EBITDA margin 16.4% 19.3% 22.8% 23.5% Net Deferred Tax Liab 30.5 30.5 30.5 30.5
Depn & Amort 30.9 47.1 44.2 49.1 Other Non-Current Liab. 9.2 9.2 9.2 9.2
Operating income 89.5 118.4 189.1 256.1 Total Loans 92.0 71.8 131.8 101.8
Interest 11.7 10.6 10.2 11.7 Trade Payables 70.7 70.2 93.2 114.9
Forex loss/(gain) 6.7 0.0 0.0 0.0 Prov. & Other CL 69.6 68.1 76.9 92.3
Other Income 1.8 1.7 5.0 5.0 Total Liabilities 729.4 776.6 978.1 1143.0
PBT 72.3 109.6 183.9 249.4 Net Fixed Assets 325.3 340.3 432.1 458.6
Tax 14.3 26.7 52.9 60.8 Capital WIP 44.1 22.1 11.0 5.5
MI & EO -0.1 0.0 0.0 0.0 Investments 0.2 0.2 0.2 0.2
PAT 58.1 82.8 131.0 188.6 Cash & Bank 13.4 24.2 57.1 76.3
PAT margin (%) 7.9% 9.7% 12.8% 14.5% Inventories 110.2 96.1 127.5 157.2
Sh o/s - Diluted 9.2 9.2 9.2 9.2 Debtors 138.1 169.0 201.5 256.3
Adj EPS 6.3 9.0 14.2 20.5 Loans & Advances 98.0 124.6 148.5 188.8
Cash EPS 9.7 14.1 19.0 25.8 Total Assets 729.4 776.6 978.1 1143.0
Qtrly-Stdalone Mar.14 Jun.14 Sep.14 Dec.14 Cash Flow (Rs. Cr) FY14A FY15A FY16E FY17E
Revenue 183.6 198.6 228.4 216.7 Operating CF
EBITDA 32.9 36.6 48.6 42.7 Op CF before tax 113.1 165.5 233.3 305.2
Dep & Amorz 7.9 9.5 13.2 12.0 Change in WC -0.7 -45.3 -56.1 -87.8
Op Income 25.0 27.1 35.5 30.7 Tax -14.3 -26.7 -52.9 -60.8
Interest 3.5 2.7 2.7 2.7 CF from Operation 98.2 93.4 124.3 156.6
Other Inc. 1.0 0.6 0.6 0.2 Investing
PBT 22.6 25.0 33.4 28.2 Capex -40.8 -40.0 -125.0 -70.0
Tax 4.0 5.0 11.0 6.6 Oth Inc & Investments 1.7 1.7 5.0 5.0
EO 0.0 0.0 0.0 0.0 CF from Investing -39.1 -38.3 -120.0 -65.0
PAT 18.6 20.0 22.4 21.6 Financing
EPS (Rs.) 2.0 2.2 2.4 2.3 Diviend Paid -15.1 -13.5 -21.3 -30.7
Performance Ratio FY14A FY15A FY16E FY17E Share Capital 0.0 0.0 0.0 0.0
EBITDA margin (%) 16.4% 19.3% 22.8% 23.5% Loans -28.4 -20.2 60.0 -30.0
EBIT margin (%) 12.2% 13.8% 18.5% 19.7% Interest -11.7 -10.6 -10.2 -11.7
PAT margin (%) 7.9% 9.7% 12.8% 14.5% Others -4.5 0.0 0.0 0.0
ROE (%) 12.7% 15.7% 20.6% 23.7% CF from Financing -59.7 -44.3 28.5 -72.4
ROCE (%) 15.4% 18.8% 23.7% 27.6% Net Chg. in Cash -0.6 10.9 32.8 19.2
PAT growth (%) 36.0% 42.6% 58.2% 43.9% Cash at beginning 14.0 13.4 24.2 57.1
Debt/Equity (x) 0.2 0.1 0.2 0.1 Cash at end 13.4 24.2 57.1 76.3
Valuation Ratio FY14A FY15A FY16E FY17E Per Share Data FY14A FY15A FY16E FY17E
Price Earnings (x) 52.0 36.5 23.1 16.0 Adj EPS 6.3 9.0 14.2 20.5
Price/BV (x) 0.7 0.6 0.5 0.4 BV per share 49.6 57.1 69.0 86.2
EV / Sales 4.2 3.6 3.0 2.3 Cash per share 1.5 2.6 6.2 8.3
EV / EBITDA 25.8 18.5 13.3 10.0 Dividend per share 1.4 1.3 2.0 2.9

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Disclaimer:
Nirmal Bang Securities Private Limited (hereinafter referred to as “NBSPL ”)is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and MCX stock Exchange Limited. NBSPL is in the process of making an application with SEBI for registering as
a Research Entity in terms of SEBI (Research Analyst) Regulations, 2014.
NBSPL or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company
covered by Analyst (in case any financial interest is held kindly disclose)
NBSPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBSPL
/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity of
the company covered by Analyst.
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate
the market conditions/risks involved before making any investment decision .
This document, at best, represents Analyst opinion and is meant for general information only. NBSPL, its directors, officers or employees shall not
in any way be responsible for the contents stated herein. NBSPL expressly disclaims any and all liabilities that may arise from information, errors or
omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities
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