CMP Rs324, Target Rs382, Upside 17.9%
Source: Company, India Infoline Research
- In line with our estimates, Ipca reported Q4 FY12 revenue growth of 17% yoy to Rs5.6bn. The growth was mainly driven by better than expected API segment (grew by 41% to Rs1.6bn) and domestic formulation (grew by 15% yoy to Rs1.5bn). Slowing tender business and new packaging norm at EU took a toll on export formulation. Overall total revenue from formulation grew by 9% yoy to Rs3.9bn and API segment grew by 41% yoy clocking revenue of Rs1.6bn. The current quarter also includes forex gain of Rs51.4mn.
- In exports, generic formulation sales missed our estimated on the back of lower contribution from EU (down by ~31%) led by policy change in packaging. Tender business also impacted due to new legislations (down by 8% yoy). But, promotional markets performance was strong (60% yoy growth) and key markets viz CIS, Africa and south East Asia did well. There was a substantial spurt in other operating income (led by consolidation of Tonira) in this quarter; further defending declining margin.
- Ipca disappointed us at margin front. The company reported EBITDA margin of 19.9% v/s 20.5% in Q4FY12. EBITDA margin declined 470bps qoq largely led by higher employee expenses and business mix (higher contribution of API Business). The impact was largely contributed by Tonira pharma consolidation. Tonira is a mainly export API company and its merger had effect of incremental ~Rs395mn sales and net loss of Rs18.5mn. overall Net margin declined by 401 bps yoy contributed by incremental depreciation of Indore SEZ and other higher fixed cost.
- We believe now company is well positioned to report better margin as the business mix is expected to improve with Indore SEZ approval. Management expects approval in two 2 months. The company expects to receive approval in two months post that 6 ANDA approvals are expected and to mitigate capacity constraints Ipca would start filing for site transfers. The company expects peak sales of ~ RS4bn from this unit. Currently the total ANDA filings are 25 of which 12 are commercialized. 8-10 new ANDA filings are planned for FY13.
- 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 20% CAGR in revenues and PAT CAGR of 23%. We believe Ipca is currently attractively valued at 8.7x of FY14E earnings. We maintain our BUY rating with a target price of Rs382.
|(Rs mn)||Q4FY12||Q4FY11||%yoy||Q3FY12||% qoq|
|(Inc)/Decrease in stock||(443)||(107)||313.9||(42)||957.0|
|Purchase of Traded Goods||(317)||(244)||30.3||(249)||27.2|
|OPM (%)||19.9||20.5||(63) bps||24.6||(470) bps|
|Effective tax rate (%)||19.5||13.6||587 bps||26.0||(648) bps|
|Net Margin %||12.9||17.0||(401) bps||15.4||(245) bps|
|Annualised Diluted EPS||23.1||21.8||5.9||30.1||(23.2)|