Buy Ipca Laboratories; target Rs 406: Dolat Capital

“Ipca Laboratories recorded better than expected topline growth of 31.8% YoY at Rs 6.15bn. Growth in constant currency was around 24% YoY. This was primarily led by a 73.4% growth in export formulations while the domestic formulations segment grew by a mere 5.7% YoY. Traction in export formulations was mainly led by increased contribution from its institutional tender business which registered sales of Rs 925mn (Rs 224mn - Q3FY11). Adequate funding made available to the AMFm program (50% of division's sales) ensures revenue visibilty in the segment. Generic formulation segment (excl institutional tender business) saw a growth of 32.8% YoY at Rs 1.36bn led by healthy growth in US (up 45% YoY). The company has indicated that Indore SEZ was inspected last week by the FDA (no 483s issued) and a formal approval is expected in two months. Revenue accretion from this facility shall drive growth in US generic division.”

“Revenues from export branded (promotional) business grew 45% YoY to Rs 615mn registering growth across markets, except Sudan and Yemen where political instability continues to impact sales. Disappointing performance in domestic formulations during the quarter was primarily due to lower contribution from anti-malarial (AM) segment. The company expects a rebound, with CVS and pain-management segments showing signs of maturity and has guided for 15-16% growth rate for FY13E. EBITDA margins stood at 24.6% (up 510bps YoY) mainly aided by lower revenue contribution from low-margin AM segment (in domestic market), higher sales from institutional business and higher dollar realizations. The company recognized a forex loss of Rs 399mn (gain of Rs 112mn - Q3FY11) largely on account of USD 63mn ECB. PAT for the quarter (excl. forex items) grew by 96.8% YoY to Rs 1.04bn.”

“IPCA’s growth mantra revolves around creating a competitive position in formulations by leveraging on its API goldmine. We expect acceleration in export formulation revenues mainly led by the generics arm (US market in particular post FDA approval to its Indore site) and sustained growth in its institutional segment. Gradual recovery in domestic formulations hereon shall add to growth momentum. At CMP, the stock trades at 11.5xFY12E and 10.3xFY13E earnings. We maintain BUY recommendation on the stock with a revised target price of Rs 406 (14x FY13E EPS),” says Dolat Capital research report.

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