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Buy Indoco Remedies – Reliance Money

November 26, 2007

Reliance money has initiated coverage on Indoco Remedies with a BUY rating. Indoco has recently entered into a JV partnership with US based Amneal Pharmaceuticals to develop, manufacture, market and distribute 10 ophthalmic products for the US market.The patents of 3 products have already expired and rests are under patent. Indoco expects few Para-IV opportunities from these product baskets. The important aspect worth noting is that the cost of product development and manufacturing would be borne by the duo equally. Indoco will get margin of 10% on the manufacturing cost and above that it will have 40% share profits on marketing the products in USA.

On the domestic formulation space, Indoco expects to outpace the industry growth by improving by 18-20% in next couple of years. On the export front, Indoco expects its regulated market sales to grow over 40% CAGR for next couple of years on the back of ramp-up in European business and fresh business flowing from Brazil, Australia, South Africa etc.

At current price of Rs 270, the stock is trades at 3.0x it EV/EBITDA FY09E and trades at 5x its FY09E respectively. Reliance money has set a Target price of Rs 419 on the basis of DCF Valuation, the stock is available at 8x of its FY09E earnings and 5x its FY09E EV/EBITDA.

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