Small Cap Stock Has Slumped 14% This Year, But Brokerage Sees 98% Upside Ahead

Shares of Indoco Remedies have remained under pressure since the start of the year, giving up around 14% since the start of the year. However, analysts at Ventura think the stock is headed for a turnaround.

The Indoco Remedies Analysts: Ventura analysts initiated coverage on the stock with a “buy” rating and a 24-month target price of ₹658. The target indicates an over 98% upside from the stock’s last closing price ₹331.60.

The Indoco Remedies Thesis: The brokerage firm said that Indoco Remedies’ poor performance in FY24 was largely due to a decline in regulatory market sales and costs incurred to address U.S. Food and Drug Administration observations.

Competitive pressures in the domestic acute segment also led to a drop in realisations. However, the brokerage pointed out that the company is taking strategic initiatives to drive future growth. The analysts project the company’s revenue to grow at a compound annual growth rate of 15.4% to ₹2,794 crore.

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As per the brokerage, these are the key drivers of growth for the Sensodent K maker.

  • Domestic sales growth at a CAGR of 11.5% to ₹1,711 crore, through geographic expansion and a focus on sub-chronic and chronic segments.
  • International sales growth at a CAGR of 18.9% to ₹1,282 crore, facilitated by revamped distribution through newly acquired subsidiary FPP and increased injectables capacity at its Goa plant coming on stream in FY26.
  • Active pharmaceutical ingredient sales growth at 20% CAGR to ₹219 crore from a low base.

The strategic shift and automation investments are expected to restore EBITDA margins to a steady state of 17-18%. Research and development spending will remain at 5-6%, with ₹400 crore capex allocated for a new facility at Aurangabad and modernisation of existing facilities.

The brokerage also shared its bull and bear case scenarios:

  • Bull Case: Revenue of ₹3,000 crore (FY24-27E CAGR of 18.2%) and a net margin of 10%, resulting in a price target of ₹879 per share (around 165% upside from current levels).
  • Bear Case: Revenue of ₹2,000 crore (FY24-27E CAGR of 3.2%) and a net margin of 9%, resulting in a price target of INR 332 per share.

Price Action: Indoco Remedies’ share price was up 1.42% to trade at ₹336.30 in early trade on Tuesday.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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