Indies profit doubles for Q2 – but

Net profit at Indies Pharma, increased a stunning 110 percent for the second quarter to March this year, from $33 million in 2019 to $69 million. With a mere seven percent rise in the quarter, sales hit $207 million over the $193 million for the same period in 2019, but there seems to be more to this profit upsurge than meets the eye.
Sale revenues rose 11 percent for the six-month, to $401 million from $361 million in 2019 and net profit increased 36 percent to $108 million from $79 million in the prior year.
Gross profit margin improved by four percentage points for the quarter as cost of sales slipped 5 percent to $57 million from $60 million, It rose 12 percent in the half-year, just ahead of the increased revenue of $122 million, from $110 million in 2019.
Gross profit ended at $150 million for the March quarter up 13 percent from $133 million for the corresponding 2019 period and ended the half-year at $279 million up 11 percent from $251 million in 2019. Meanwhile, other income jumped 330 percent for the quarter to $150,628 and 490 percent for the six months to $848,999.
Administrative expenses declined 18 percent for the quarter, moving from $100 million to $82 million in 2020, but rose marginally, for the six months to $173 million, compared with $172 million in 2019.  Profit before exchange rate adjustments and finance cost rose 107 percent in the quarter to $69 million from $33 million and 33 percent for the six months to $106 million from $79 million in 2019.
Cash flow from operating activities brought in $138 million for the six months, but increased receivables of $74 million and purchase of fixed assets, amounting to $411 million, left the company with cash of $153 million at the end of March after loan inflows of $399 million. Shareholders’ equity stood at $875 billion, compared to $647 million at the end of March last year. Net current assets at the end of March stood at $731 million, including receivables of $367 million, cash and bank balances of $153 million and $64 million due from a director. A loan of $399 million to finance to the acquisition of a three-acre property in Ironshore, Montego Bay, for its headquarters and warehousing. Current liabilities came in at $467 million for the six months. The loan to a director represents an increase over the prior periods and is not a good signal, being sent to investors.
As impressive as the results appear, investors should be cautious. The improvement in the margin in the second quarter is out of line the year to date, with the first quarter coming at 66 percent, suggesting that some profit shifted to the second quarter from the first, most likely due to an error. There are no indications that management has come to grips dealing effectively with the expiry of drugs and the appropriate manner in booking the write-offs. While the interim figures showed the gross profit margin at the 70 percent range in the past two years, by the end of the fiscal year, it fell to 61 percent in 2018 and 63 percent in 2019 and spoiled what was looking like promising earnings, until the final numbers were in for the years. Based on the 2018 and 2019 final numbers, there is likely to be a big adjustment to inventories in the last quarter that will pull down the profit levels.
Earnings per share came out at 5 cents for the quarter and 8 cents for the six months. IC is forecasting 15 cents per share for a PE of 19 times 2020-21 earnings.
Following the release of the recent results, the stock traded at $2.85 on the Junior Market of the Jamaica Stock Exchange and is priced well ahead of most Junior Market stocks.

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