Indoco Remedies – Multibagger in Pharma Formulations Growth Story?

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Written By: Shuchi Nahar | Shuchi’s Blog | Linkedin Profile

Indoco Remedies – Company Overview

The company was established in 1947. Indoco is a small-sized pharma company engaged in the manufacture, marketing, and distribution of pharmaceutical products and services in the domestic & international markets.

Through its nine marketing divisions viz. Indoco, Spade, Warren NexGen, Warren ACE, Warren Excel and Vision, Indoco Focus, Indoco CND, Spera, and Institution the company serves a range of doctor specialties.

Indoco Remedies has signed supply agreements with companies like Watson, Aspen, and DSM to supply formulations to advanced and emerging markets.

Indoco Remedies Revenue Breakup

Figure:1 Graph Showing Revenue Trend & Revenue Breakup

India Formulations Growth Core to Overall Growth

Domestic formulations (~63% of FY20 revenues) grew at 6.5% CAGR in FY16-20.

The subdued growth can be attributed to a high concentration of acute therapies and one of the lowest MR productivities.

With a market share of ~0.7% and an overall rank of 29, Indoco Remedies is still a marginal player with some top brands in smaller categories like stemmatological.

Watch: 73rd AGM of Indoco Remedies

Exports Formulations Slowly Back on Track

Exports formulations (~27% of overall FY20 sales) have de-grown at 6.6% CAGR in FY16-20, undone by regulatory hurdles in developed markets.

However, recent clearance from the UK-MHRA and lifting of warning letters from the USFDA for Goa plant II and III (Plant-1 is still under warning letter) is likely to improve operating leverage for export formulations.

Revenue Mix – FY20

Indoco Remedies Revenue Mix

Figure:2 Pie Chart showing Revenue Mix

Research and Development

Indoco Remedies R&D Centre has a highly skilled team of around 400 scientists involved in the research and development of API, FDFs as well as Analytical Services.

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First-time launch of Allogliptin under Aloja and Aloja-M for antidiabetic therapy in India.

On the back of this launch and lower antidiabetic portfolio size, the management expects double-digit growth in this segment going ahead.

  • One para IV launch scheduled for H2FY21for the US market.
  • The company provided for 2.25 crore of extra bad debts in Q1FY21
  • Baddi (Plant-3) utilization level at 35% and has an Opex of 4 crores per quarter (including depreciation)
  • Q1 expenses were down to lower travel expenses and higher US sales contribution.
  • Q1FY21 gross margins (~70%) are sustainable, going ahead. Employee cost is likely to be stable for the rest of this fiscal. Other expenditure – Some savings in travel + promotional spend may continue, higher productivity in India business.
  • Q2FY21 domestic sales will continue to be impacted.
  • Business on track as compared to last year – April: 50%, May: 60- 65%, June: 80%, Currently: 90%

Indoco Remedies enjoys a good position in the domestic market with 27 brands ranking amongst the top 5 positions in their respective sub-segments:

Indoco Remedies Market Share

Figure:3 Table Showing Market Share%

Patent Applications Filed Till Date – Geographic Distribution

Out of the 68 API patent applications filed, 24 applications were accepted and granted.

These include two Patents granted in Europe and one in US for Alogliptin (Europe) and Canagliflozin (Europe and USA) APIs, during the financial year 2019 – 20.

Out of the 22 FDF patent applications filed, 10 applications were accepted and granted.

Indoco’s R&D efforts received Indian Patents for the formulation of Diclofenac and Quetiapine tablets.

Figure:4 Table showing number of Patents filed and approved to date

Watch: Indoco Remedies Looking at Rs.100 Cr Revenue in Coming Quarters

Capex & Debt

Capex was Rs500m for FY20 and guided to in similar range for FY21. Indoco Remedies has a gross debt of Rs2.6bn with long and short-term borrowing at Rs1.4bn and 1.3bn.

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CAPEX cycle is over while its regulatory issues are behind.

There could be a possibility of the next few quarters to be the inflection point for earnings recovery.

It has multiple triggers like:

1) Increased focus on chronic products

2) Strong order book for EU

3) Launch of new products in the US

4) Underutilized API capacity.

Long term debt – 144 crore, short term debt – 125 crore, cash – 10-12 crore. Capex over the next two to three years to be less than 50 crores. The gross block for the overall API segment is 120 crore.

ANDA Filing by Indoco Remedies

Company targets to file 5-6 ANDAs every year and have sizable filings in Injectables.

With the number of ANDAs and Dossiers awaiting approval, the future for the Regulated markets looks optimistic over the next two years. Regulated markets include the UK, US, New Zealand, Germany, Spain, and others.

In Emerging Markets, it includes mainly Africa, Asia, Latin America, and others. Indoco Remedies has the approval of 12 ANDAs while it has pending approval for 44 ANDAs with US FDA.

The company received approval for its ANDA for Olanzapine Tablets 2.5mg, 5mg, 7.5mg, 10mg, 15mg, and 20mg.

The company is planning to launch this product in the US in the second half through a marketing partner.

One of the company’s US partners received approval for Palonosetron injection ANDA, which was filed from the Goa Plant II. The launch of this product has been planned for 2QFY21.

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Launch quantities of Tranexamic injections (June’20) and Zolendronic injections (July’20) have been shipped to the US from the Goa Plant II.

India Business

Indoco Remedies launched Telmichek–CT Tablets in the cardiac category.

The company has Alogliptin combination with Metformin launch stated for later this year. Apixaban patent litigation case is scheduled for hearing before the Delhi High Court on September 8, 2020.

The company’s legacy products accounted for 60% of the revenue. The number of Medical Representatives in India is around 2300.

US Market of Indoco Remedies

Revenue was flat QoQ at Rs. 268m.

It received approval for Olanzapine tabs in 1QFY21 and plans to launch in 2QFY21. Its US partner received approval for Palonesetron injection, which was filed from Goa Plant II and it will be Launched in 2Q FY21.

Guided revenue of Rs1.5bn (vs. Rs560m in FY20) for FY21.

It has around 18-20 ophthalmic products among the pending ANDA’s and it is in negotiation with three potential marketing partners and targeting for launch in FY 22.

Europe and EMS

Revenue grew 52% QoQ and declined 2% QoQ respectively.

Guided for revenue of Rs2.25bn for Europe in FY21E (46% growth Y-o-Y) as it has a strong order book for the next 6-8 months.

Ivory Coast, French West Africa, and Kenya have been major contributors to the Emerging Markets business.  

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Written By Shuchi Nahar | Shuchi’s Blog | Linkedin Profile

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Shuchi Nahar
Shuchi is NISM Certified Equity Research Analyst, CFA - Level 1, a student of Law and Finance, and an aspiring CS.
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