Buy Ipca Laboratories; target Rs 369: Sushil Finance

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Buy Ipca Laboratories; target Rs 369: Sushil Finance

Sushil Finance is bullish on Ipca Laboratories and has recommended buy rating on the stock with a target price of Rs 369 in its February 2, 2012 research report.

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Sushil Finance is bullish on Ipca Laboratories and has recommended buy rating on the stock with a target price of Rs 369 in its February 2, 2012 research report.

Ipca Labs has come out with subdued set of domestic numbers for Q3FY12 however, net sales recorded strong growth with its international business compensating for the domestic sluggishness. The company on the revenue front has registered a growth of 31.8% to Rs. 6148 mn with PAT being flat at Rs. 639.3 mn mainly on the back of a forex loss of Rs. 398.8 mn as against a forex gain of Rs. 112.1 mn in Q3FY11. Revenues grew by 31.8% YoY from Rs. 4663 mn in Q3FY11 to Rs. 6148 mn in Q3FY12. The company's domestic business which contributes ~37% to the sales of the company registered a sluggish growth of 5.2% whereas the export business registered a strong growth of 50.2%. Domestic formulations continued its sluggishness for the second quarter running with it recording a mere 5.7% growth from Rs. 1775 mn in Q3FY11 to Rs. 1876 mn in Q3FY12 mainly on account of lower business in the seasonal anti-malarial space, restructuring of the marketing division undertaken during the past few months and industry wide slowdown in acute therapies.

Export formulations increased to Rs. 2898 mn in Q3FY12 from Rs. 2097 mn in Q3FY11 mainly on the back of a strong growth of 312% in its institutional business, 33% growth in its generic portfolio and branded portfolio recorded a growth of 45% to Rs. 615 mn. On the Generics side, formulations grew on the back of a 45% growth in the US market and approximately 35% growth in the Australia/NZL region combined whereas Europe registered a 15% growth. On the Branded side, markets such as LatAm (140% yoy growth), CIS (34% yoy growth) & W Africa (31% yoy growth) recorded good growth whereas Middleast remained flat majorly from declines in Sudan & Yemen, where the company has not been promoting sales due to political unrest.

Ipca clocked API revenues to the tune of Rs. 1244 mn, a growth of 4.7% yoy with the export API posting a growth of 5.3% yoy, while the domestic API grew by 3.3% yoy on the back of greater captive consumption. Operating profit reported growth of 66.2% YoY from Rs. 909.9 mn in Q3FY11 to Rs. 1512.7 mn in Q3FY12; whereas on account of higher rupee average realization (Rs. 51.3 in Q3FY12 vs 45.0 in Q3FY11) and strong uptake in institutional business, the EBIDTA margin came in at 24.6% v/s 19.5% in Q3FY11. Reported Net Profit was flat amounting to Rs. 639.3 mn in Q3FY12 whereas margins were at 10.4% mainly on the back a 93% YoY rise in interest costs, 223% jump in depreciation and a forex loss to the tune of Rs. 398.8 mn. Excluding the forex loss margins for the quarter came in at 16.9% vs 11.3% in Q3FY11. The company had registered a forex gain of Rs. 112.1 mn in Q3FY11.

Ipca's international branded business also joined the growth wagon this quarter along with the generics and the tender business which have been more than compensating for the dismal domestic business. We believe the revival in the domestic business will take time and thereby we have altered out Q4FY12E and FY13E growth estimates as we build in slower ramp in the domestic business and better than expected growth in the international markets on the back of robust anti-malarial tender business and the expected Indore SEZ USFDA approval (to drive generics business). However, we maintain our target price of Rs. 369 and our BUY rating on the stock," says Sushil Finance research report.

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