CMP Rs492, Target Rs572, Upside 16.3%
- Ipca Labs reported below estimated revenue growth of 14% yoy to Rs7bn attributable to muted growth in formulation business and few one offs. The performance in Q3 FY13 was impacted by a) Lower UK generic revenues (down 44% yoy) as production halted for 45 days due to regulatory inspection b) lower growth in malaria segment in India c) Loss of ~Rs60mn of revenues due to the termination of nutraceuticals production in pharmaceutical facilities.
- Domestic formulations grew lower than estimate at 13% yoy, primarily due to lower growth in anti-malaria segment (+8% yoy) whereas all other segments did well. Relieving factor was that the management maintained domestic revenue guidance of 17%-18% for FY13 and the impact of NPPP would be just ~Rs200MM, which again can be offset by price increases in selected products. Institutional business reported strong growth of 23% to Rs1.13bn. The management expects institutional business to achieve revenue of Rs3.9bn in FY13 and ~ 4.8bn in FY14.
- At operating front, Ipca’s Q3 FY13 OPM performance was also slightly below our estimate at 22.6%. Margin contracted by 201bps yoy and 59bps qoq. Margins contracted due to a) high-cost inventory of artemisinin (inventory of US$600/T vs. market prices of US$350/T) b) onetime expense relating to US generic user fees and USFDA plant inspection c) increase in R&D expenses led by unanticipated new projects.
- We believe the margins would be on track by FY14 as high-cost inventory is expected to materialize by March 2013 and revenues in UK to normalize from 4QFY13 onwards. Additionally improvement is inevitable with the USFDA approval of Indore SEZ (Inspection expected in April 2013 but material benefit to flow in from FY15 onwards). Lower operating incomes consecutively resulted in lower reported PAT at Rs879mn. Adjusted PAT recorded growth of 9.3% yoy (adjusted for forex loss of Rs186mn)
- We believe disappointment at result front would be short lived as a few being one-off in nature and other issues will resolve shortly. The company is well positioned to report better margins going ahead as the business mix is expected to improve. 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 expect 18.4% CAGR in revenues and Adjusted PAT CAGR of 25.9%. We rollover our target to FY15 and rate IPCA BUY from market performer earlier with a revised 9- month target price of Rs572.
|QUARTERLY -(Rs mn)||Q3FY13||Q3FY12||%yoy||Q2FY13||% qoq|
|Other Operating Income||86||131||(34.0)||138||(37.5)|
|(Rs mn)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|(Inc)/Decrease in stock||(163)||(42)||288.5||69||(336.6)|
|Purchase of Traded Goods||(245)||(249)||(1.8)||(304)||(19.5)|
|OPM (%)||22.6||24.6||(201) bps||23.2||(59) bps|