Ipca Laboratories Ltd. share price target

Exports formulations (28% of FY19 revenue) grew 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 the US business, besides third party sales. However, a likely recovery...

Healthy revenue growth across segments, except institutional anti-malaria business: Sales at INR10.8b (v/s est. INR9.6b) were up 23% YoY, led by API and exports (formulation). API grew 37% YoY to INR3b (30% of sales). Generics' exports grew 21% YoY to INR1.3b (13% of sales). Branded exports grew 17% YoY to INR916m (9% of sales). Domestic formulation sales grew 13% YoY to INR4.5b (46% of sales). Overall growth was dragged to some extent by 34% YoY decline in the Institutional (INR273m) segment. Better operating leverage offsets reduction in gross margins: Gross margins...

Q1FY20 from its average contribution of 25%. This has resulted in higher material costs and lower gross margin by 360bps QoQ. Management guided that normalized gross margin will return from Q2FY20E onwards. The higher material costs also contributed from the higher price of material by 100bps out of 360bps in Q1FY20. IPCA is global leader in losartan production (Rs1.2bn sales in FY19) and its valsartan sales is improving from current run rate of Rs25m/month. It guided more than 20% growth in API sales in FY20E....

Ipca Laboratories Limited (Ipca) reported strong performance during the quarter. Sales for the quarter grew strongly by 23.2% y-o-y to Rs. 1,078 crore (16.9% above our estimate). Operating profit grew by 44.9% y-o-y to Rs. 207.9 crore (9.4% above our estimate). OPM improved by 289 BPS y-o-y to 19.3% (130 BPS below our estimate of 20.3%). Adjusted PAT reported growth of 50.4% y-o-y to Rs. 140.2 crore (16.8% above our estimate). Reported profit for the quarter grew by 88.1% y-o-y to Rs. 129.4 crore. Strong growth across domestic and exports (Formulation...

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, a likely...

Margin improvement due to product mix and lower overheads: In Q4FY19, total revenues of IPCA Labs increased by 7%YoY to Rs 8338 mn (our estimates Rs 8706 mn) mainly due to increase in domestic formulations and API.

Gross margin expanded 45bp YoY to 68% due to a better product mix. Reduced remediation cost (INR40m v/s INR100m in 4QFY18) and better operating leverage led to lower other expenses (-520bp YoY). As a result, EBITDA margin expanded at an even higher rate of 590bp YoY to 20.9% (our estimate: 17.4%). EBITDA was up 49% YoY at INR1.7b (our estimate: INR1.5b), while PAT increased 71% YoY to INR1b (our estimate: INR873m)....

Ipca's major customer. The regulatory hurdle at distributor's end is now resolved and hence we expect this business to pick up gradually. Also, Ipca has been re-selected as the panel supplier for anti-malarial medicines to the global fund pooled procurement mechanism and for private sector co-payment mechanisms for an initial period of three years in FY19. Thus, the exports...

Sustained outperformance in branded domestic formulation (DF) space coupled with enhanced opportunities in the API segment and additional business from institutional Anti-Malaria segment shows that IPCA has enough headroom to be on a strong earnings trajectory over the next 2-3 years

We met IPCA management, who charted out its vision to achieve a resolution Change in Estimates | Target | Reco with USFDA and turn around its business verticals which had faced challenges since CY15. IPCA's institutional tender business for anti-malaria...