Weak sales (1% YoY) and steady costs (10% YoY) led to EBITDA miss of 24% (vs our estimate). While Q4 secondary growth (as per AIOCD^) was 22.3% YoY (vs. 9.9% of IPM*), primary growth was lower by `250 mn due to significant inventory correction (adj. Sales growth would have been 13% YoY).
FY19 revenue grew 17% YoY (base business: 6.6% YoY) led by 19.6% growth in chronic/ sub-chronic (85% of sales) and 4% in acute segments.
Management expects FY20 sales to be 30-50% higher than market growth. Net cash position expected to remain in FY20 given no acquisition plans.
We cut FY20/21E EPS by 7%/11% on weak Q4 and revise TP to `680 (22x FY21E EPS) vs `800 (23x) earlier.
While execution has been weak, we have ‘add’ rating given its ability to generate FCF from its domestic business model with focus on chronic portfolio.
Consolidated revenue was muted at `2.1 bn (+1% YoY), 3%/14% below our/ consensus estimate, due to inventory rationalization at stockist level (`250 mn impact), muted growth in chronic therapies (4.9% YoY) and weak performance in acute segment (-15%). Kinedex sales were lower (-39% YoY in Q4; -22% YoY in FY19), while Aprica sales were higher 45% YoY in Q4’19 on low base due to inventory write-offs in Q4’18. Eris’ standalone sales were also muted at `1.9 bn (+2.4% YoY) due to subdued performance in base business (3.9%) and decline in Strides portfolio (-5.1% YoY). Gross margin at 83.8% contracted 70 bps YoY/ 63 bps QoQ. Weak sales coupled with steady other/staff expenses (14% YoY/ 7% YoY) led to EBITDA of `622 mn (-13% YoY/ -34% QoQ).
Consolidated EBITDA margin at 28.9% contracted 487 bps YoY/ 812 bps QoQ. This led to PAT of `541 mn (-3% YoY/ -33% QoQ) which miss our/ consensus estimates by 25/26% despite lower interest costs (-43% YoY), tax rate (7.5% vs. 9.9% in Q3’18) and higher other income (61% YoY).
Expects to outperform the market (IPM) by 30- 50% (if IPM grows at 9-10% in FY20) led by brands and favorable portfolio mix (85% chronic); if IPM grows at 12-13%, growth would be even higher for Eris.