Ipca Laboratories Ltd. share price target

17 June 2020 Ipca Laboratories (IPCA) ended FY20 on a strong note, with 42% YoY growth witnessed in earnings to INR6.5b. This was led by 16% YoY growth in Domestic Formulations (40% of sales), 32% YoY growth in the API segment (20% of sales), and healthy improvement in profitability. IPCA remains on track to improve MR productivity in DF, with cost efficiency expanding the business scope in API and International Generics. We remain positive on the company owing to the sustained outperformance of the DF segment, improved growth prospects in API, and better operating leverage. Maintain Buy. YoY, led by strong growth in the Exports (Generics), API, and DF businesses, partially offset by decline in Branded and Institutional exports. Exports (Generics) grew 40% YoY to INR1.7b (15% of sales) and DF sales 21% YoY to INR4.3b (40% of sales). API grew 30% YoY to INR2.8b (26% of sales) for the quarter, with Export APIs growing at 27% and Domestic APIs at 41%.

at Rs1,839(earlier Rs1,728) on 26x PE of FY22E and upgrade to Buy (earlier Accumulate) due to marginal change in earnings estimate. Strong performance by Domestic formulation and API segment in Q4FY20: Revenue grew 21% YoY to Rs10.0bn (PLe Rs8.8bn) with domestic formulations and API business reporting strong growth of 21% and 30% YoY.EBITDA growth was 10% YoY to Rs1.92bn (PLe Rs1.56bn) and EBITDA margin was 19.2%(PLe 17.7%) versus 21% in Q4FY19.During the quarter, IPCA incurred impairment and...

Price fix of 40 formulations by NPPA will not have an impact on listed entities. With the disruption in productions, logistical movement and manpower scarcity, IPM growth declined in first two months of FY21E. The severity of declining trend is visible in 1) acute-heavy portfolios, 2) top premium brands (with alternative cheaper/generic drugs), 3) drugs used in hospital surgeries, 4) secondary therapies like Derma, Opthal, vaccines, stimulants and hormones whose treatment can be delayed. Key listed companies such as Alkem, GlaxoSmithKline, Alembic, FDC, Indoco are to be impacted in...

On the business front, despite the nationwide lockdown, domestic growth is expected to remain more or less stable. Exports growth, barring for one or two months due to congestion in all major ports globally, is also expected to remain strong due to 1) currency benefit, 2) slowdown in competition due to delay in new approvals that will be beneficial for existing players and 3) expected demand continuum across the world despite Covid-19. Some windfall is also expected in some critical productsa case in point is Hydroxychloroquine, a malaria drug that is likely to be repurposed as a prophylaxis for Covid-19 treatment in some cases....

IPM's MAT growth in Feb-20 was 9.7% as against 9.6% in Feb-19 and Jan-20. The growth was majorly contributed by price at 5.4%, volume at 1.9% and new product at 2.5%. In the last 12 months, contributors average growth towards price, volume and new products were 5.6%, 1.7% and 2.3% respectively. The growth attributed by new products and volume however has been on a declining trend in last 50 months, while price hike has been a key factor that has contributed to IPM's growth. With 70-75% intermediaries/API/KSM sourced from China, IPM hasn't been...

downsides from USFDA. With a very low risk of return per unit in comparison to peers, we maintain BUY' and retain TP Rs1,826 on PE 23x of FY22E earnings. We estimate earnings CAGR 20% over FY20-22E led by a comeback in the UK generic and tender business while maintaining US revenue contribution to remain at the current level. The positive outcome from...

25 February 2020 IPCA remains confident that it will outperform industry with 14-15% CAGR in DF segment over the next three years. The plan to add 250-300 MRs over the next 6-9 months emphasizes its incessant focus on this segment. Pain management prospects appear particularly promising, with IPCA comfortably surpassing industry growth (8-10%) with a CAGR of 17% over FY14-19 and 20% growth in 9MFY20. IPCA plans to add two more SKUs in pain management in FY21. The Zerodol group of brands has reached a revenue size of ~INR4b with potential to double over 3-4 years. Another promising product is chlorthalidone and its combination, which has reached a revenue size of INR1b in the past four years with attractive medium- term potential. IPCA delivered strong 33% YoY growth in API segment in 9MFY20, led by robust off-take in existing molecules and addition of new molecules (Sartans).

Growth in exports formulations (28% of FY19 revenue) was on the back of growth in both international generics and international branded formulations. The international anti-malarial institutional business has also contributed substantially to overall exports growth. US traction will take more time than earlier estimated due to USFDA import alerts for the Ratlam facility that is the only API source for Silvassa and Pithampur formulations plants along with Silvassa and Pithampur (Indore) plants that are specifically earmarked for US business, besides third party sales. However, sustained...

EBITDA margin guided to improve by 100-150 bps YoY in FY21E and FY22E due to the benefits of operating leverage, re-entry in UK generics, traction in branded generics and strong demand of high value APIs. We expect Global Fund business may shift some of its sales to FY21E. IPCA trades at PER of 21.6x (FY21E) and 18x (FY22E). We have increased our earnings estimate by 34% (FY21E) and 40% (FY22E) and increased our PE multiple to 23.3x(earlier 22x)due to better visibility in tender business, generic export and reduction in effective tax rate.We have upgraded the stock to BUY' from Accumulate...

13 February 2020 IPCA is one of the companies with high exposure to domestic formulation (DF; 40% of sales), a favorable opportunity in API (23% of sales) and better traction in international generics. We raise our EPS estimate by 10%/10.5%/11.4% for FY20/21/22 and also growth in DF, a revival in int. generics and sustained momentum in API. strong growth in exports (generics) and API. Exports (generics) grew 39% YoY to INR2b (16% of sales), API sales were up 24% YoY at INR3b (23% of sales), while DF sales increased 15% YoY to INR4.9b (40% of sales). Exports (branded + institutional) grew 12% YoY to INR1.6b (13% of sales). Gross margin shrank 120bp YoY to 65.1% due to a change in product mix (higher share of API sales). EBITDA margin contracted 70bp YoY due to a lower gross margin and higher employee cost (+60bp YoY), offsetting the benefit of lower other expenses (- 120bp YoY).