"SAMPLE REPORT"




Recommended to Members on: Apr 14, 2010

INDOCO REMEDIES LTD

Recommendation: Buy

Recommendation Price: Rs. 390

Target: Rs. 500-600

Stop Loss: 325

Time Frame: 6-12 Months

COMPANY PROFILE:

COMPANY HISTORY:

In 1945, a Goan entrepreneur Mr. Govind Ramnath Kare, who was in the business of wholesale and retail trade of pharmaceuticals, started a firm which he named Indo Continental Trading Company. The principal business of this firm was to import pharmaceutical formulations from Europe and distribute them in Western India. However in 1947, after India became independent, the new Government in its bid to encourage indigenous manufacturing of medicines banned import of several formulations. Mr. G.R. Kare instead of being discouraged, decided to venture into manufacturing of pharmaceuticals. Accordingly, on 23rd August 1947, a week after India's independence, a new Company was founded with the intent to manufacture and sell pharmaceutical formulations. Thus Indo Continental Trading Company became Indoco Remedies Limited.

The manufacturing operations were started in a small house in Thane near Mumbai. However in this early period, the Company suffered a severe set-back. After Indian independence, the Portuguese Government in Goa sealed the border between Goa and India and Mr. Kare was unable to travel to Mumbai very often. In 1963, two years after Goa's independence, Mr. Suresh Kare, son of Mr. G.R. Kare came to Mumbai and took over as Managing Director of the then sick unit. Under the stewardship of Mr. Suresh Kare, Indoco never looked back. From a meager turnover of Rs. 1 Million and a total employee strength of around 50 in 1969, the Company has grown by leaps and bounds. Indoco now has an estimated turnover of Rs. 1.81 Billion for the year 2003-04 and is over 1750 employees strong.

2005

-Indoco Remedies enters into an Agency Agreement with SRU

OUT-LOOK:

Indoco's regulated market business has witnessed tender supply orders from Germany, South Africa & New Zealand for metformin and paracetamol tablets boosting its EF revenues. The company also stands to gain on the back of new dossier licensing and supply deal with Watson Inc. (WATSON) and Aspen Pharmacare (ASPEN) entered during Q4FY10. The WATSON deal for US market is expected to pan out from FY13 whereas supplies for ASPEN deal for emerging countries will start from FY12 onwards. The semi-regulated markets business will gain further traction on the back of tender supplies (Kenya). Indoco is in the process of building a dedicated facility for ophthalmic products catering exclusively to the regulated markets which it plans to enter by filing its own ANDA's.

We expect the tender supply business and contract supply business to gain further traction going forward.

Domestic Formulations (DF) revenues has been gaining momentum post the restructuring exercise commenced during Q4FY09. Indoco currently markets 200 products (incl. line extensions) in the domestic formulations space focusing mainly on Anti-infectives, Respiratory and Dental which comprise atleast 60% of the total domestic formulation revenues. Indoco plans to launch two new divisions (EXTENT & INTEGRA) with 300 new medical representatives (MR). Although Indoco's focus categories will remain unchanged, the thrust will be to launch

niche products which would command higher price realizations.

Export formulations:

Indoco's Export Formulations (EF) business is multifaceted. The company sells dossiers, does contract manufacturing and supply of different molecules at decent margins, has tie-ups for select ANDA's and has now started filing their own ANDA's. Indoco's chemistry and formulations skill sets coupled with regulatory complied manufacturing capabilities has been gaining recognition from MNC's abroad. Indoco has also entered into a couple of deals with MNC's during Q4FY10. Although the initial revenues may not be substantial, we believe the beginning has been made

and the pie will grow going ahead.

Regulated markets growth to be driven by UK, Germany…

Indoco's regulated market business comprises around 80% of the EF revenues. It consists of countries like US, UK, Germany, Eastern Europe, South Africa, Australia and New Zealand. The regulated markets business of Indoco has been skewed towards countries like UK and Germany. Indoco's UK business which contributes more than 60% of the regulated markets revenues will continue to grow strongly on the back of contractual supplies whereas German business which contributes more than 20% will grow on the back of AOK supplies. The tender business in regulated markets of Germany, South Africa (Metformin) and New Zealand (Paracetamol) will continue to show an uptake owing to company's plans to increase the number of product application in the second round of bidding. In Germany, Indoco plans to file for 5 products through its partners, for new AOK tenders (March, 2011 - March, 2013) (2 products filed in previous round and received approval for one). Similarly, for New Zealand and South Africa, Indoco is expected to see higher tender orders going forward.

We believe UK and Germany will continue to maintain their share of the regulated market business over the next 3 years.

WATSON deal and ophthalmic product portfolio to drive business in US region…

In February 2010, Indoco finalized a generic product development alliance with WATSON for seven sterile products (incl. ophthalmic products) having market size of US$679 mn. The deal includes a few patented products also. Indoco will provide API manufacturing, formulation development and manufacturing of the generic formulations whereas WATSON will file the Abbreviated New Drug Applications (ANDAs) for US FDA approval and will have rights to market, sell and distribute these products in the US pharmaceutical market. The filings have already begun and we are expecting the approvals to start coming in from FY13. We expect milestone payments for dossier development to come in during FY11 but we have not factored the same in our estimates. The US business (mainly ophthalmic products) has been marginal owing to differences with its US partner Amneal Pharmaceuticals (Amneal).

However, Indoco has firmed up plans to enter the US markets by filing its own ANDA's. Indoco has commissioned a dedicated ophthalmic facility catering exclusively for the regulated markets which is expected to come onstream in FY12. Indoco expects 30% of EF revenues to come from the new plant in FY12 which will increase to 35% in FY13.

ASPEN deal to drive growth in semi-regulated markets in the long term…

Indoco's semi-regulated markets business includes countries namely Latin America, Africa, South East Asia & Commonwealth of Independent States (CIS). Indoco has been marred by the payment related issues in these countries and is therefore keen to explore the tender business model and partnership model for further penetration in these geographies.

In March 2010, Indoco entered into an dossier licensing and supply deal with ASPEN for the supply of 7 opthalmic products to 30 emerging countries(incl. BRICS & other emerging countries & SA). ASPEN will start marketing and distributing these products immediately on obtaining the regulatory approvals. We expect Rs. 200 mn revenues coming from ASPEN in FY12. During Q3FY10, Indoco bagged a large tender from Kenya for a couple of products which will generate revenues of Rs.180 mn over a period of next 2 years. The supply for the same has started from February 2010.

EF revenues will be further boosted by the milestone payments from WATSON and ASPEN during FY11 and FY12 as dossier licensing income which has not been factored in. With increased cost conscious attitude of MNC's, we believe companies

like Indoco which have facilities adhering to global regulatory standards stand to benefit in the long run.

Domestic Formulations:

Indoco's Domestic Formulations business (68% of 9MFY10 revenues) has been showing a turnaround post the inventory and debtor re-alignment exercise commenced during Q4FY09. It currently markets 200 products (incl. line extension) through 6 divisions in the domestic formulations space with a 1500 medical representatives (MR) strength.

Indoco has significant number of products in the revenue range of Rs.30-100 mn. Going forward, the company will launch niche, high realization products in its main therapy areas namely RI and AI. The company's endeavour will be to scale up a product launch to a Rs.30 mn brand in a span of 2 years for it to be profitable.

Indoco's top 5 brands are growing above the average domestic formulation market growth rate except Vepan (DPCO product).

SHARE HOLDING PATTERN:

MANAGEMENT TEAM:

S.No	Name	Designation
1	Mr. Jagdish B Salian	Company Secretary & Compliance Officer

PRODUCT REPORT:

CAPITAL STRUCTURE:

Current Equity: Rs. 12.29 Crore

From Year To Year Class Of Share Authorized Capital (Crores) Issued Capital (Crores) Paid Up Shares (Nos) Paid Up Face Value Paid Up Capital (Crores) 2008 2009 Equity Share 18.00 12.29 12286714 10 12.29 2007 2008 Equity Share 18.00 12.29 12286714 10 12.29 2006 2007 Equity Share 18.00 11.82 11821714 10 11.82 2005 2006 Equity Share 18.00 11.82 11821714 10 11.82 2004 2005 Equity Share 18.00 11.82 11821714 10 11.82 2003 2004 Equity Share 18.00 8.82 8820000 10 8.82

MF HOLDINGS:

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