Indoco Remedies Q3 Results Review - Margin Weakness To Persist In Q4; Downgrade To Reduce: Yes Securities

Yes Securities Report

Indoco Remedies Ltd.'s continues to be impacted by higher remediation costs and tepid domestic sales YoY as it weeds out slower performing brands. We await outcome of execution efforts of past few quarters as new launches in domestic business have been offset by a weak acute seasonality in current year.

International exports have been driven by U.S. which continues to gain on back of strong generic tailwinds amid benign pricing environment. Europe business has been a stark disappointment as company would miss FY24 guidance.

A subpar domestic performance, big European miss and one-off expense Rs 82 million results in a rather sharp earnings downgrade of ~30% for FY24 which has a cascading effect on FY25 estimates too.

We bake in margin recovery next fiscal on back of 10-11% domestic growth and notably lower other expenses as remediation costs decline YoY.

With domestic business weaker QoQ in Q4 and Q1 FY25 expected to be anyways better YoY, surprises appear limited in the near term.

We introduce FY26 estimates; continue to value stock at 19 times FY25 earning per share for a revised target price Rs 350 (earlier Rs 405) and downgrade to Reduce from 'Add'.

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