A costly remedy

IPO REVIEW

FY04

FY03

% change

Net sales156.68127.8822.52 Other income3.682.0976.08 Operating profit35.6024.5445.07 OPM (%)22.7219.19  Net profit21.2614.6744.92 Net margin13.5711.47  EPS (Rs)24.1115.92  * year ended June 30, 2004   The company's financial performances have been on an upward curve, thanks mainly to the overall improvement in domestic and export sales. Net sales increased to Rs 156.68 crore in FY04, a 22.52 per cent from FY2003.  While net profit registered a 44.92 per cent rise to Rs 21.26 crore, net margins improved to 13.57 from 11.47. Exports as a per centage of net sales have also been growing in the past few years with exports accounting for 8.34 per cent of net sales in FY04 as compared to 2.24 per cent in FY 2000.  Prospects
With the patent regime about to change in 2005, Indian pharma companies are expected to benefit from the impending boom in the global pharmaceutical sector, especially generics and CRAMS.  However, on the downside, Indoco has not much experience in the businesses where it intends to make a mark, like CRAMS and manufacturing APIs. Many of the company's proposed projects are still awaiting approvals from various domestic and foreign bodies. Analysts note that delays in getting the approvals may impact profitability.  "Though many of the company's projects are in the implementation stage their business model is attractive and the future prospects look bright. The pharmaceutical industry is itself poised for growth which augurs well for the company," notes an analyst with a leading domestic securities firm.  Valuations
The company reported an EPS of Rs 24.11 for FY04. Post-issue the EPS will be Rs 17.99. At the lower end of the price band (at Rs 220), investors will get the shares at a trailing 12-month P/E of 12.23x, while at the upper end of the price band the P/E will be 13.62x. Compared to the peer group valuations of companies such as FDC Ltd. (16.7x), J B Chemicals and Pharmaceuticals (9.7x) and Unichem Laboratories (11.9x), the valuations appear reasonable.  "The company