The company is hopeful of renewal of full cGMP status for its Unit I facility in Goa by EU authorities, which should allow reinstatement of the lost business. Even without reinstatement of EU cGMP status, it expects to regain its base revenue it was generating prior to getting a restricted GMP status, as the Baddi facility is now operational and a large client has resumed uptake. The Unit II facility, which manufactures sterile formulations and was successfully inspected, has received an EIR status. EBITDA margin which currently stand depressed should return to high teen levels by FY21. The company is guiding its return to 18% EBITDA margin if the regulatory situation unfolds as expected. We have a Buy on IRL with a target price (TP) of Rs290.
Q1:Gap remains between guidance, achievement INDR trades at PER of 19.7x FY20E and 13.5x FY21E earnings. INDR has guided for seasonal benefits in India formulations and early resolution in Goa Unit-I from UK MHRA. With structural degradation in the sector valuation, there are sizable gap between guidance and achievement of key targets in INDR. The US market prospects changed signnificantly with approved products being highly competitive and hardly having any economic feasibility to re-enter in those products. Teva planned to return some of its ophthal ANDAs due to indistinct economic prospects. With challenging comparative valuations in comparison to its growth and peers, we assign 12x PE of FY21E earnings as it reflects unfavorable risk-return matrix. We downgrade to‘Reduce’ and decrease TP to Rs130 (from Rs.137).
Assuming the EU GMP status is restored anytime now, we expect company to clock anything between RS 170cr to RS 200cr in EBITDA) and RS 250cr in FY-21 in base case. At CMP stock trades at 7x FY21 EBITDA. We value Indoco at 12x FY21 EBITDA to arrive at a Target price of RS 290.
The domestic business continues to be impacted by channel inventory reduction. During the quarter secondary sales for IRL as reported by AIOCD AWACS grew 12.5%, however, IRL reported sales dropped 4% YoY. With the commercialization of the new facility at Patalganga, API segment has delivered good growth with a rise in sales at 8.3% QoQ and 45% YoY.