Indoco Remedies hits 8-month high on hopes of margin boost; stock surges 7%

Shares of Indco Remedies soared 7 per cent to hit an eight-month high of Rs 414.85 in Thursday’s intra-day trade, on hopes of margin improvement going ahead.

The stock of pharmaceutical company traded at its highest level since March 2022. In the past one week, it rallied 17 per cent, as against 0.35 per cent rise in the S&P BSE Sensex. Earlier, the stock had hit a 52-week high of Rs 459 on January 3, 2022.

Indoco manufactures and markets branded formulations and APIs for domestic and export markets. In domestic formulations, the company serves a range of specialties through its nine marketing divisions.

The domestic formulations accounted for 54 per cent of revenues. Major therapies include respiratory, anti-infectives, stomatologicals, gastrointestinals, and vitamins. The formulation exports accounted 41 per cent of revenues, while APIs contributed 4 per cent, with remaining contribution from CRAMS.

In the July-September quarter (Q2FY23), Indoco Remedies posted 12 per cent year-on-year (YoY) growth in revenues at Rs 433 crore. EBITDA, too, grew 1.7 per cent YoY to Rs 88 crore, whereas margins were at 20.3 per cent. Profit after tax, meanwhile, was up 19 per cent YoY to Rs 49.7 crore.

"An excellent performance driven by international formulation sales and ably supported by domestic business has helped us deliver improved margins this quarter," the management said.

Analysts at ICICI Securities maintained a 'BUY' rating on the stock on the back of steady domestic business visibility, strong exports guidance, and improvement in margins.

The restructuring exercise for improvement in MR productivity and therapy calibration is likely to yield productive growth in Indian formulations, said analysts. That apart, clearance from UK-MHRA and lift of USFDA warning letters for Goa plant II and III is likely to improve operating leverage for export formulations.

"Indoco will benefit with market share gains in covered markets domestically, while export formulations are likely to grow with a strong pipeline, visible launch schedule, and robust order book. Niche ANDA filings in ophthalmic, injectable, and controlled release OSDs in the US will also scale up the US share from a low base and are the key triggers for future price performance," the brokerage firm said.

Analysts at Prabhudas Lilladher, meanwhile, expect margins to recover, led by softening of input prices and scale up of revenues.

“We remain structurally positive on Indoco Remedies’ growth prospects given MR productivity enhancement and higher penetration in North & East markets, new launches in US, and higher tender business in EU market,” the brokerage firm said.