Ipca Laboratories Ltd. share price target

Better revenue traction and margins: In Q2FY19, total revenues of IPCA Labs increased by 15.4%YoY to Rs 9978 mn(our estimates Rs 9596 mn) mainly due to increase in domestic as well asexport formulations.

Adjusted for one-time costs, IPCA results were below estimates. Revenue came in at Rs8.6bn against our estimate of Rs8.5bn while EBITDA stood at Rs1.4bn against our estimate of Rs1.5bn. PAT came in at Rs655mn against our estimate of Rs883mn. The domestic malaria season has had a weak uptake till date and all hopes hinge on the monsoon picking up later in the season. In the exports business, the next key trigger will be the resumption of the institutional tender business. growth, including revival in domestic and institutional generics business and the expected reinspection of plants by USFDA over the course of FY19....

Export formulations (30% of FY18 revenue) grew at ~6% CAGR in FY1118. The exports formulations growth 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 (Indore) formulations plants along with Silvassa and Pithampur (Indore) plants that are specifically earmarked for US business, besides third party sales, thus...

12 August 2018 IPCAs revenue grew ~20% YoY to INR8.5b (our 48% of sales) and API (up 27% YoY to INR2.2b, 26% of sales) segments. However, overall revenue growth was dragged by Generic (down 15% YoY to INR1b, 12% of sales) and Branded (up by a moderate 6% YoY to INR785m, 9% of sales) segments. Gross margin expanded 500bp YoY to 67.5%, led by the increased share of the relatively better-margin DF business. Revenue growth, coupled with better operating margins, led to adj. Reported PAT was lower at INR655m due to a forex loss of INR230m. (1) IPCA is confident of maintaining gross margins at 1QFY19 level; however, inconsistency in the availability of key materials from China may lead to disruption in production. (2) Though unbranded generics sales came in at INR1b in 1QFY19, IPCA has maintained its guidance of INR5.4b for FY19. (3) Remediation cost for 1QFY19 was INR60m.

There are no issues outstanding for any regulatory agency other than USFDA. Though Global Fund has completed the process of selection for supplying anti-malaria medicines, it is yet to award orders. However, ex-Global Fund, stable business continues. IPCA has guided revenue of INR2b in FY19, up from INR1.5b in FY18 on the back of addition of molecules and incremental business from Global Fund. IPCA is awaiting resolution of regulatory issues of UK distributor to restore normalcy in that business. It has guided that it would take 2-3 months for pick-up in UK business (~7% of FY18 sales). DF remains on track to achieve 13-14% growth in FY19 on low base of FY18, incremental sales from new molecules and higher traction in existing molecules. We raise our target P/E multiple to 21x (from 20x earlier) on back of enhanced visibility of regulatory resolution based on remediation work done by the company, revival in DF and anti-malaria business.

ICICI Securities Ltd | Retail Equity Research Revenues grew 17.6% YoY to | 783 crore (I-direct estimate: | 781 crore) due to 16.7% growth in domestic formulations to | 323 crore (I-direct estimate: | 318 crore) and 25% growth in API to | 192 crore (I-direct estimate: | 175 crore). Export formulations grew 12.3% YoY to | 251 crore (I-direct estimate: | 276 crore) EBITDA margins improved 388 bps to 14.0% YoY (I-direct estimate: 15.0%) mainly due to an improvement in gross margins (67.3% vs....

IPCAs 4QFY18 revenue grew ~18% YoY to INR7.8b (est. of INR7.7b), primarily led by robust ~15% YoY growth in the formulation segment. of INR1.6b), with the margins at 14% v/s 18.8% in 3QFY18 and 10% in 4QFY17. Sequential contraction in the EBITDA margin can be attributed to high other expenses (+600bp QoQ). PAT came in 30 May 2018 at INR513m (est. For FY18, sales, EBITDA and PAT stood at INR32.8b (+2.3%), INR4.

We launch coverage with a BUY rating and a price target of Rs. 870, arrived at by applying 20x multiple to its EPS Rs. 43.6 for the year ending March- 20E. Our target price suggests a return of 18% from the Current Market Price (CMP) of Rs. 735 over the next 12 months.

ICICI Securities Ltd | Retail Equity Research Revenues grew 14% YoY to | 859 crore (I-direct estimate: | 814 crore) due to 12% growth in domestic formulations to | 383 crore (Idirect estimate: | 402 crore) and 17% growth in export formulations to | 273 crore (I-direct estimate: | 227 crore). API sales grew 16% YoY to | 192 crore (I-direct estimate: | 172 crore) EBITDA margins improved 406 bps to 18.8% YoY (I-direct estimate: 16.0%) mainly due to 1.7% decline in other expenditure. EBITDA increased 46% YoY to |162 crore (I-direct estimate: | 130 crore)...

IPCA expects at least 200-250bp EBITDA margin improvement (~18-18.5 in FY19E v/s a normalized margin of 16-16.5% in FY18E). This will be primarily driven by 1) India business growth of ~14-16%, 2) a significant reduction in remediation cost from ~INR500-550m in FY18E (~1.6% of sales) to ~INR40-70m in FY19E, 3) a reduction in manpower by ~600 (~200 in marketing and ~400 in manufacturing), 4) commencement of the WHO tender business from FY19E, and 5) other cost rationalization efforts to lower SG&A and other expenses. We expect further margin improvement in FY20 on the back of ramp-up of the US business and approval of injectables for the tender business.