Indoco remedies acquired clinical/contract research organisation division of Pir

Indoco remedies acquired clinical/contract research organisation division of Piramal Enterprises; Maintain BUY with PT of Rs392

Indoco remedies (INDR IN) announced the acquisition of CRO division of Piramal Enterprises. The acquisition comprises assets of the division along with its employees in an all cash-deal and the same would be funded via internal accruals. The CRO is equipped with 98-bed facility and spread across 30,000 square feet. It is equipped with monitoring stations, phlebotomy stations, four-bed ICU, analytical lab and capabilities of eCTD submission. It also has regulatory approvals from several bodies including USFDA and UKMHRA.

Our view: With the acquisition, INDR would be able to do bio-equivalent and bio availabilities studies in-house for the products to filed in future in regulated markets. Till now, the studies were outsourced by INDR. With this acquisition, INDR would be able to fasten the process of doing the studies, which would reduce the time for filing the products with regulatory agencies. We believe that this is a good strategic acquisition from long term perspective.

Valuation: We would not be able to incorporate any change in financials due to this event as financials related to this event remains undisclosed. At CMP of Rs384, the stock is trading at 23.3x FY16E EPS of Rs16.5 and 19.6x FY17E EPS of Rs19.6. We have price target of Rs392, based on 20x FY17E earnings. Though the current price is only 2% lower than our target price, we maintain BUY rating on the stock as our earnings estimate is yet to incorporate incremental earnings due to newer product approvals. We remain positive on future prospects of the company based on superior execution in US market, improved sales mix as well as productivity in DF and higher profitability in UK market going forward.

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