Ipca Laboratories: Muted outlook led by Exports biz

14 Aug 2023 , 10:36 AM

Recommendation: Reduce; Target price: Rs 865

 

Analysts of IIFL Capital Services lower their FY24-26 EPS estimates for Ipca by 6-9% to factor in the muted growth outlook for its Export businesses, with API segment sales expected to decline 10-12% in FY24, Generic Institutional segment expected to decline 15% in FY24, and Generic Exports expected to see only a marginal growth of 7-8% in FY24. They also downgrade their rating on the stock from ADD to REDUCE (TP Rs865), since the Export business-led volatility for Ipca will further increase post the acquisition of Unichem. Ipca’s guidance of 300-350bps Ebitda margin expansion in FY24 is also in line with our expectations. While analysts of IIFL Capital Services continue to like Ipca’s sustained outperformance in India, they believe the domestic growth story can be better played through JB Pharma, Mankind & Torrent for whom the drag of Export businesses is fairly limited. 

Improving productivity to continue driving outperformance in India: 

Ipca’s India Formulations business (45% of FY23 revenue) grew 14% YoY in Q1 led by robust growth across therapies with Pain, Cardiac & CNS segments growing 15%, 10% & 21%. The addition of sales reps over past 2 years (6,180 reps as of Q1 vs 5,500 as of FY21) has enabled strong growth in several new divisions (e.g. CNS), with many of those achieving breakeven within the first year. Led by improving productivity, analysts of IIFL Capital Services expect the India business to clock 14% sales Cagr over FY23-26. Mgmt guidance is 12-14% growth for FY24. 

Muted outlook for Exports and analysts of IIFL Capital Services factor in 2% growth in Exports biz for FY24:

Ipca has guided for API sales (22% of FY23 revenue) to decline 10-12% in FY24, owing to sluggishness in the Anti-malarial business and price declines seen in Sartan KSMs. Generic Institutional business (5%) will also decline 15% in FY24 led by muted offtake for Malarial products and Ipca’s malarial injectable plant shutdown. Generic business (13%) will see a muted 7-8% growth, while Branded (8%) likely to grow 12-14% in FY24 (RUB depreciation is a risk). 

Standalone Ebitda margin guidance of 19-19.5% for FY24 is in-line with analysts of IIFL Capital Services expectation: 

While Ipca’s overall revenue is likely to grow only 6-8% in FY24, mgmt expects GMs to improve 350-400bps in FY24 to 68%, driven by lower API/RM costs and better segmental mix (lower share of API sales in FY24). However, GMs will come under pressure post Unichem acquisition, as exposure to Exports business will further increase and Unichem’s GMs were only 59% in FY23.