Ipca Laboratories (Q1 FY14)

India Infoline News Service | Mumbai |

Ipca has a strong franchise in Indian branded business coupled with high margin exports. We believe Ipca’s is well placed in domestic and Export business to consistently grow at a higher base.

CMP Rs665, Target Rs750, Upside 12.7%
  • Ipca Labs reported numbers are slightly better than our estimates. The company reported Q1 FY14 revenue growth of 27%% yoy to Rs8.1bn vs. estimated revenue at Rs7.9bn. The top-line growth was led by strong growth in all key verticals. Company continued its robust performance in domestic market despite disruption in domestic business due to DPCO 2013.


  • Revenue growth was led by 12% growth in India & 40% growth in institutional tender business. Domestic formulations at Rs 2.5bn, was up 12% yoy despite implementation of new pharma pricing policy (DPCO 2013) and trader strike in Maharashtra which led to disruption in the sales. The growth led by Pain management, and cardiac therapy and going ahead we expect good growth in Malarial business led by good monsoon this year. We expect robust growth of 14% in domestic business. The encouraging factor was that management maintained domestic revenue guidance of 14-16% for FY14 and the impact of NPPP would not be substantial as the loss can be offset by price increases in selected products. Company has already taken price hike in few brands (Larigo-antimalarial drug, prices are up by 10%). Export formulation posted 47% yoy growth to Rs3.3bn led by 47% growth in UK business and 40% growth institutional business.


  • At operating front, Ipca’s Q1 FY14 operating margin at 21.2% was slightly below our estimate of 22%. Margin contracted by 112bps yoy and remained flat qoq. The margin drop was largely led by dip in gross margins which declined by 170bps qoq and 190bps yoy to 59.1%. For FY14, we expect margin to remain stable on the back of trivial impact of domestic pricing policy and higher R&D cost. We expect margins to improve in FY15 to 23% led by ramp-up of Indore SEZ, (to get approval in next quarter and the benefit to flow in from FY15 onwards). The company’s Reported PAT grew by 67% yoy while adjusted PAT (adjusted for Rs 480mn forex loss) was in well in line with our estimate of Rs1.1bn. 


  • Ipca has consistently grown above 20% in the last 5 years. We expect robust performance to continue. Ipca has a strong franchise in Indian branded business coupled with high margin exports. We believe Ipca’s is well placed in domestic and Export business to consistently grow at a higher base. To summaries the various triggers are, a) minimal impact of the NLEM implementation on domestic business b) US business is expected to enhance with Indore SEZ ramp up (FY15E) c) Institutional Generics business still stands tall with management confirming funding assurance from various funds till CY16. We expect 18% CAGR in revenues and Adjusted PAT CAGR of 21% over FY13-15E.  We maintain BUY rating with a revised target price of Rs750.

Revenue Mix
QUARTERLY -(Rs mn)
Q1FY14
Q1FY13
%yoy
Q4FY13
% qoq
Domestic  Formulations
2,504
2,242
11.7
1,784
40.3
Domestic API
456
393
16.0
376
21.4
Export Formulations
3,300
2,245
47.0
3,131
5.4
Export API
1,666
1,422
17.1
1,296
28.5
Other Operating Income
130
42
214.0
131
(0.3)
Total Domestic
2,960
2,635
12.3
2,160
37.0
Total Export
4,965
3,667
35.4
4,427
12.2
Total Formulation
5,803
4,487
29.3
4,915
18.1
Total API
2,122
1,816
16.9
1,672
26.9
Total
8055.6
6344
27.0
6718
20

Result table
(Rs mn)
Q1 FY14
Q1 FY13
% yoy
Q4 FY13
% qoq
Net Sales
8,056
6,344
27.0
6,718
19.9
(Inc)/Decrease in stock
274
 

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