Indoco remedies Ltd. is a Mumbai based pharmaceutical company which deals in formulations, contract manufacturing and Active Pharmaceutical Ingredients (API).

Key Highlights

• The company has many projects in hand (Watson Pharmaceuticals, USA and Aspen Pharmacare) which are expected to contribute in a big way to the company’s future revenues.

• The company is available at 1.71x of its book value of Rs. 226.57, with the improved company’s earning visibility, we expect the stock will attract more value.

Future Outlook At Current market price of Rs 388, the stock is available at P/E of 11.35x of its FY10E earnings, and 6.95x of its FY11E earnings. We recommend BUY with target price of Rs 465 given that company’s future shows potential.

Incorporated in the year 1947, Indoco remedies Ltd. is a Mumbai based pharmaceutical company that focuses on formulations, with some presence in contract manufacturing and research. It also deals in Active Pharmaceutical Ingredients (API) that is manufactured by a group company. The company has its presence in the therapeutic segments which includes anti-infective, anti-cold preparation, ophthalmic, antispasmodic, stomatology, anti-inflammatory and anti-fungal. 

The International business contributes over 27 % to the total revenue. Domestic Business contributes around 73% to the total revenue of the company. The company has its presence across 50 countries.

The company currently has four manufacturing units- two in Mumbai and two in Goa and R&D center in Mumbai. The solid dosage facility in Goa has been accredited by UK-Medicines and Healthcare Products Regulatory Agency (MHRA), and the sterile plant of Goa has been designed as per US Food and Drug Administration (FDA) norms. On the selling front, it has a marketing network of 1,248 medical representatives.

The industry P/E is 27.46 and the company is trading at a P/E of 10.38 on TTM Basis. The company has EPS of 30.74 which is one of the best in the industry. The company pays highest dividend i. e. 52.50 annually amongst its peers.

Bottom line of Indoco Remedies rose 1126.98% to Rs 7.73 crore in the quarter ended December 2009 as against Rs 0.63 crore during the previous quarter ended December 2008. The top line rose 22.82% to Rs 95.70 crore in the quarter ended December 2009 as against Rs 77.92 crore during the previous quarter ended December 2008. During the quarter, domestic formulation sales are up by 37.26% to Rs. 66.63 crores over the corresponding quarter last year. The employee cost during the quarter has gone up to Rs.2.29 crores. The power and fuel cost also rose by Rs. 1.02 crore over the same period previous year.

In the previous year, the company’s top line increased by 51% and the bottom line increased marginally by 4% on account of increase in interest cost and depreciation. The company showed good results in the year 2007 with 34% increase in the top line and 48% growth in the bottom line. Thereafter, in the next year the company changed its financial year and published results for nine months.

The net worth of the company has been increasing on a continuous basis. The working capital loan of the company has increased from Rs. 19.48 crore to Rs. 39.76 crore in the current year. The deferred tax liability of the company has risen over the past five years. The company does not have much of investments.

The Global Pharmaceutical market likely to witness products worth 123 billion dollars loosing patents by 2012, the generics driven Indian drugs industry could be benefitted to the tune of around 18.4 billion dollars. The Indian pharmaceutical industry, has grown from a mere Rs 1500 crores turnover in 1980 to about $19 billion (over Rs.
78,000 crores) in 2008. The country now ranks 3rd in terms of volume of production (10%of global share) and 14th largest by value (1.5%).During 2008-09, the Indian pharmaceutical sector performed creditably. It registered a domestic sale of Rs. 35,367.50 crore as against Rs. 32,605.70 crore last year, thereby recording a growth of 10.1%. This achievement comes in the wake of the global economic slowdown currently being experienced specially in U. S. & Europe. Pharma is one sector which promises to grow in both Developed and Developing Markets. Global Pharma Industry grew at a pace of 6% in 2009 to reach an estimated figure of USD 725 billion. Developed economies like US, Japan and Europe which account for 85% of global Pharma markets grew by 4% Emerging markets continue to witness 12%+ growth. India though accounts for 2% of the global markets, it is ahead of many developed countries in terms of ANDA filing, Drug Master file registrations, Contract Research and Manufacturing(CRAMS), Approved Facilities for manufacturing and Research. Indian companies are already making great strides in the global generic markets and API’s, and the sector continues to hold great potential. The global pharmaceutical market is forecasted to touch $ 929 billion by 2012. The current spending on healthcare (public and private) is estimated to increase to 10% GDP by 2016. The pharmaceutical market in India is expected to grow around 12% and to be valued around USD 20 billion by 2015. The market continues to be dominated by acute therapies; however chronic segments such as Cardiovascular, Diabetes, Central Nervous System and speciality segments like Oncology are growing faster than the market.

At present CRAMS global market size is estimated at $20 billion, and is expected to grow to $31 billion by 2010.

COMPANY:

a. Projects

i. The company has entered into business partnership with Watson Pharmaceuticals Inc, USA to develop, manufacture and supply generic sterile products to Watson for the US markets. The size of these products is $ 679 million. The alliance is expected to boost the revenue of the company.

ii. During the previous year, the company entered into an agreement to supply of anti-diabetics Metformin tablets of Rs. 50 crore to Germany. Metformin is one of the top selling products in Germany in terms of volume.

iii. The company has tied up with Aspen Pharmacare for long term drug supply contract. The deal is for seven products for territory covering more than 30 countries.

b. Global Presence:

.. The company has its presence in more than 50 countries including UK, Germany, Spain, Hungary, South Africa, Australia and New Zealand.

c. CRAMS

.. The company has capabilities to support the outsourcing needs of MNCs under collaborative research business model by acting as Fee for service provider partner. The company is one of the preferred outsourcing partner for a range of activities in CRAMS space.

d. Marketing Divisions:

.. The company has six marketing divisions which particularly focus on the different specialties such as General Practitioners, Consulting Physicians, Gynaecologists and Paediatricians.

e. Future Outlook

• The company is expected to provide with value added products to the Generic companies worldwide.

Domestic formulation business registered impressive growth of 37% to Rs 66.63 crore and outperformed industry growth of 15.7% during the period. Products like Cyclopam, Oxipod, Clamcheck, Karvol Plus, Tuspel Plus, Methycal, Aloha-XT, Cital, Carmicide, Amclaid, Mofloren have shown a positive growth in the quarter.

.. During the previous quarter, Revenues from top 5 products of company stood at Rs 23 crore compared to Rs 15.30 crore in the corresponding previous period.

.. The company is looking forward to have a product basket in the Opthalmic segment in U. S as well as in European market.

.. The company’s top 10 brands contributed 61% of the total turnover.

.. During the year, the revenues from export formulations grew by 24% at Rs. 94.81 crore as compared to Rs. 76.53 crore for the last year.

.. The domestic business registered a turnover of Rs. 250.39 crore. The formulations business recorded Rs. 239.60 crore sales and API Rs. 10.79 crore.

.. International business registered a growth of 24.1% during the year 2009.

.. The company’s revenue from formulations exports in the year 2009 grew by 23.9% at Rs. 94.81 crore as compared to Rs. 76.53 crore in the previous year.

.. The APIs business recorded Rs. 16.23 crore in the year 2009 as compared to Rs. 11.92 previous year.