IPCA Laboratories - Express Idea

India Infoline News Service | Mumbai |

Ipca has a strong franchise in Indian branded business (~55% of total business) coupled with high margin exports.

CMP Rs625, Target Rs700, Upside 12%


Steady growth in export to continue

We believe export momentum will continue with pick-up in branded promotional and tender sales. Increasing capacity along with improving demand will keep Ipca’s export business buoyant even in future. The fear of losing on international tender sales also has subsided with continuation of AMFM programme (affordable Medicines Facility for Malaria) over CY13-14E. The Artesunate + Amodiaquine (AS-AQ) combination drug (Rs500mn) launch is a next strong trigger in tender sales. Thus, on back of strong supplies and incremental AS-AQ combination launch, we expect the company to generate ~Rs5bn sales in FY14. We believe the Artesunate injectable (high margin and low competition) drug will prove long term growth driver with expected supplies to start by FY15. Additionally, Management expects FDA clearance of the Indore facility in 3-4 months, which will boost export; we expect full ramp-up in FY14.


Minimal near term impact of new pricing policy; longterm trend in domestic growth intact

Domestic market contributes ~30% to IPCA’s total business, is expected to maintain its strong growth. Higher productivity and strong visibility is likely to spur the growth in FY14 (~18%). Ipca has one of the best franchise in domestic market. The domestic mix of drugs also bodes well with the strategy to minimize the impact by new pricing policy. Management expects to recuperate a part of the loss via price hikes in non-NLEM products. We believe some portion of the loss will also be compensated by increase in volumes of high-value brands after price control. In domestic business, we estimate ~16% growth in FY14.


Valuations multiple to expand; recommend BUY

Ipca has a strong franchise in Indian branded business (~55% of total business) coupled with high margin exports. Management guided to 16-17% growth with stable margins in FY14. This includes continued strong guidance of 20% growth in the anti-malarial tender business for Africa (under AMFM). With multiple growth drivers for revenue and margin expansions, we believe the valuations are still attractive at 14x FY15E EPS of Rs44.8.


Financial summary
Y/e 31 Mar (Rs m)
FY12
FY13E
FY14E
FY15E
Revenues
23,587
28,131
33,675
39,172
yoy growth (%)
24.2
19.3
19.7
16.3
Operating profit
5,135
6,233
7,644
9,009
OPM (%)
21.8
22.2
22.7
23.0
Pre-exceptional PAT
3,297
3,865
4,763
5,662
Reported PAT
2,771
3,236
4,763
5,662
yoy growth (%)
5.6
16.8
47.2
18.9

 
 
 
 
EPS (Rs)
26.1
30.6
37.7
44.8
P/E (x)
24.0
20.4
16.6
13.9
Price/Book (x)
6.3
5.2
4.2
3.3
EV/EBITDA (x)
16.6
13.8
11.2
9.6
Debt/Equity (x)
0.5
0.5
0.4
0.4
RoE (%)
28.6
27.9
27.9
26.6
RoCE (%)
26.3
26.4
27.5
27.4
Source: Company, India Infoline Research
 

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