Ipca Laboratories Ltd. share price target

IPCA Labs total revenues declined by 4% YoY to Rs 7,492 mn (lower than our estimates of Rs 8,265 mn) due to tepid performance of Export formulations and flat growth in Domestic formulations. Its operating margins decreased by 540bps YoY to 11.9% (lower than our estimate of 14.2%) during the quarter due to lower gross margins and higher expenditure.

Key highlights: The company continued its dismal show in Q2 led by below expected performance in domestic formulations and formulation exports. While the sharp fall in malarial sales kept domestic formulations flat, continuing facility issues with USFDA and...

IPCA continued its USFDA tragic saga in 2QFY16 as well. Sales (down 4% yoy, 1.2% qoq) was impacted by (1) Currency headwinds across geographies (2) Softness in India formulations, driven down by high dependency on malarial sales. Adjusted EBITDA margins at 13.2% (down 400bps yoy and 160bps qoq) are function of weak sales. Management reiterated its India and overall sales guidance at 12%/7-8%, respectively for FY16E. The guidance is contingent on ramp up in institutional malaria business (dependent on Global Fund approval), excluding which the top-line is expected to remain flat. Traction in HCQS and institutional...

The company expects to receive the clearance certificate for its Ratlam facility from WHO within the next 10-15 days. Supply is expected to resume within 2 weeks time. Ipca has done around Rs 400 mn revenues till August 2015 and is hopeful of Rs 700 mn business this quarter. It is hopeful that the company should do Rs 1-1.2 bn business in quarters ahead. In FY 16E, the company should close the year with Rs 3.5 bn business.

IPCA Labs total revenues declined by 19% YoY to Rs 7,580 mn (lower than our estimates of Rs 7,941 mn) due to tepid performance of US formulations and CIS formulations. Its operating margins decreased by 1390bps YoY to 10.8% (lower than our estimate of 11.8%) during the quarter due to lower gross margins and higher expenditure.

(estimate ~US$ 30mn in FY16). Additionally, IPCA expects normalized institutional operationandrampupinformulationexportstoEU/AustraliasoonasitsAPI/formulation unitsgotrecentlyclearedbyEU,Australia,andWHOrecently....

The import alert at Ipca's 2 plants came in as a negative surprise. However, we believe that resolution for the same will be a long drawn affair as Ipca will have to follow protocols laid down by the USFDA. Surprisingly, management's earlier guidance that observations made at Indore and Silvassa were not critical in nature, did not hold true highlighting the incorrect assessment of the 483s. Although it is difficult to ascertain the timeline, we assume ~2 years for the resolution (average industry norm). However, HCQS and Propanol have been exempted from the import alert at Silvassa and hence, there is no change to our...

IPCA's Ratlam based API plant has been issued an import alert by the USFDA following the Form 483 observations including data integrity issues in July 2014. In our view, the import alert will further delay the resumption of the US business by ~2 years. Besides, higher remediation costs would hit the margins in the near term as well. Accordingly, we pencil in 100bps downward revision in our margins at 21% for FY15E and gradual recovery for the next 3 years. IPCA's investments in the past few years were concentrated towards US resulting into lower ROIs until resolution. Further, given that 4 of its products are exempted from the alert,...

Event: IPCA Laboratories has voluntarily stopped shipment from its API facility in Ratlam (MP, India) post receiving Form 483 from the US FDA during the recent inspection. The company has received 6 observations in the letter; of which two pertain to data integrity and lower power back up in each, while one each were...

IPCA Lab is a fully-integrated Indian pharmaceutical company manufacturing over 350 formulations and 80 APIs for various therapeutic segments. It exports its products over 110 countries. Export contributes 60 percent of total sales....