Indoco Remedies (Indoco) is a Mumbai-based pharmaceutical company enjoying a strong presence in the Domestic formulations market. Within the therapeutic presence, Indoco enjoys a strong foot hold in Dental, ophthalmic, Respiratory, Anti-Allergy, Anti-infective, nutrition, analgesics etc.

Also it has moved higher into the high growth lifestyle therapies like – antidiabetes cardiovascular etc. Additionally Indoco is scaling up exports and has built a respectable presence in the contract manufacturing and research space. Currently Indoco is looking forward to capitalise on export opportunities in the regulated markets like US and UK and is all set for backward integration, which should lead to margin expansion.

Driven by steady progress in the domestic formulations and contract manufacturing, Indoco’s revenues and profit grew at a CAGR of 24% and 29% respectively during FY03-06. While in the 9month FY07 the revenues witnessed 38.3% growth to Rs 2256.6mn. However, we estimate the revenues and profitability of the company would grow at a CAGR of 24.3% (to Rs 4670.3mn in FY09) and 25% (to Rs 614.5mn in FY09) during FY06-09.

At current price of Rs 256, the stock is trades at 4.2x and 3.0x it EV/EBITDA of FY08E and FY09E, respectively and trades at 6.4x and 5.1x its EPS FY08E and FY09E respectively. We are initiating a coverage on Indoco remedies with a target price of Rs 347, based on our DCF valuations. At target price the stock would be valued at 6.9x it FY09 EPS and 4.3x its FY09 EV/EBITDA.