by Suhani Adilabadkar
IPCA Laboratories has witnessed a strong FY20 and with the recent December numbers moving in double digits, the stock has altogether gained 60% over the past one year. IPCA Labs is a fully-integrated Indian pharmaceutical company manufacturing over 350 formulations and 80 APIs for various therapeutic segments. The company is one of the world's largest manufacturers and suppliers of over a dozen APIs produced right from the basic stage at manufacturing facilities endorsed by US-FDA, UK-MHRA, EDQM-Europe and WHO-Geneva.
IPCA Laboratoriesi s a therapy leader in India for anti-malarials with a market-share of over 34% and fast expanding presence in the international market. It exports to more than 100 countries across the globe with client line up boasting global giants like AstraZeneca, GlaxoSmithKline, Merck, Roche and Sanofi Aventis.
Quick Takes:
Revenue stood at Rs. 1,139 crore for Q3FY20, up 20% while operating profit jumped 15% and PAT at Rs. 197 crore jumped 30% YoY.
IPCA’s domestic formulation (DF), reported at Rs. 485 crore has grown 15% YoY and the company is leader in pain management therapy.
IPCA management has guided business growth of around 15-16% overall for the company as a whole.
Pain management therapy accounts for about 47% of entire domestic formulations revenue, growing 19% YoY.
Rs. 250 - 300 crore capex would be there in next financial year.
The management had given guidance of 20% for H2FY20 and the API segment is already ahead of schedule growing 24% YoY in Q3FY20.
December Quarter results gave share prices a boost
It was a strong quarter for IPCA, moving on a double-digit growth pitch in Q3FY20. Revenue stood at Rs. 1,139 crore for Q3FY20, up 20% from Rs. 948 crore in the same period last year. Operating profit stood at Rs. 265 crore in December quarter FY20 compared to Rs. 232 crore in the corresponding quarter FY19, rising 15% YoY. Operating margins declined to 23.3% in Q3FY20 against 24.4% in Q3FY19 due to a change in product mix and higher employee cost. Lower interest cost and depreciation and stagnant tax expenses led to higher PAT or net profit for the quarter at Rs. 197 crore in Q3FY20 against Rs. 160 crore corresponding December quarter FY19.
Commenting on Q3 results, Mr. AK Jain, Joint MD, IPCA Laboratories said, “Summing up the performance for 9 months, I would say that our focus has been on improving productivity and utilization of assets and brand building”. The stock closed 6% higher after the December quarter FY20 result announcement on February 12, 2020.
FDA bans turn IPCA into primarily a domestic player
IPCA laboratories is one of those few Indian pharma companies largely dependent on its domestic Indian market. Formulations and APIs catering to both domestic and exports contributed 75% and 25% respectively to the revenue basket in Q3FY20. With respect to formulations, domestic exposure is higher, accounting for about 43% of the entire revenue mix while with APIs, exports is the major growth driver constituting 25% of the total revenue basket. For IPCA labs, domestic formulations, international generics and APIs have become major growth drivers, especially after the USFDA ban on three of its facilities, Pithampur, Silvassa and Ratlam. With the US business being shut, IPCA has been strengthening this revenue trinity augmenting its topline growth and profitability.
With domestic formulations (DF) reported at Rs. 485 crore, this has grown 15% YoY while the company is a leader in pain management therapy accounting for about 47% of entire DF revenues growing 19% YoY. The next biggest contributor is cardiovascular and antidiabetics put together, constituting around 18% of the DF pie rising 9% YoY, then comes antimalarials at around 6% of DF pie, which de-grew 4% YoY followed by dermatology, contributing 5%, jumped 17% YoY, cough and cold therapy jumped 18% YoY putting in 4% to total DF revenues and lastly urology constituting 3% and reported growth of 25% in Q3FY20 .
Domestic formulation has made a strong recovery in FY19 after a dip in the previous year and has continued its strong growth momentum in FY20 reporting growth ahead of the overall industry. In this respect, Mr. Jain said, “Our focus is continuously more on brand building. So if you look at our top 10 brands, the growth is almost around 20%. So that is significant. Our overall top 10 brands are growing by around 20%, and others are growing by around 8% to 9%, so that is giving us around 15% kind of growth”.
APIs reported at Rs. 285 crore are export driven as exports contributed 80% of the entire API revenue pie. The management had given guidance of 20% for H2FY20 and the API segment is already ahead of schedule growing 24% YoY in Q3FY20. Growth was driven by higher off-take in both existing and new molecules in the first nine months of FY20. To cater to higher internal consumption the management plans to incur capex of Rs 250 crore.
Clarifying on the API capex plan, Mr. Jain said, “Capex would be there for Dewas facility. It depends on how and when we get the environment clearance. But hopefully, around Rs. 250 crore to 300 crore capex would be there in next financial year”. In addition to that, IPCA has acquired Noble Explochem recently to secure its supply chain with respect to key intermediates and reduce its dependence on China.
Despite the international generics impacted by US FDA ban and distributor issues in the UK, there has been strong traction throughout FY20. In Q1FY20, the generics business was at Rs. 125 crore and has grown 53% in the first nine months and 39% YoY in Q3FY20. Coming to its various subheads, Europe with the strongest margins grew 12% YoY, Australia and New Zealand grew 39% YoY, for Canada, generics business tripled to Rs. 26 crore while South Africa dipped 23% YoY in Q3FY20. With such growth levers in place, while the industry has grown by 9%, IPCA has managed to outperform at 15% in Q3FY20. For Q4FY20, IPCA management has guided business growth of around 15-16% overall for the company as a whole.