Accumulate Ipca Labs; target of Rs 572: Dolat Capital

Dolat Capital is bullish on Ipca Laboratories and has recommended accumulate rating on the stock with a target of Rs 572 in its January 31, 2013 research report.
 
“IPCA Labs’ recorded moderate revenue growth of 14% YoY to Rs 7.01bn, driven by healthy growth in branded and institutional tender business. Domestic formulations reported growth of 13.4% YoY at Rs 2.13bn. On a like to like basis the branded domestic business (excluding insignificant contribution from nutraceutical supplies that were halted) grew by healthy 15.4% at Rs 2.11bn. Muted performance in its old established brands has restricted overall growth momentum in this segment.NLEM policy impact stands negligible at Rs 20mn (NLEM portfolio exposure of Rs 2bn).”
 
“Export formulations however, registered growth of mere 9.5% YoY at Rs 3.17bn, with branded and institutional tender business recording 42.6% and 22.6% YoY growth respectively. Generic business reported a degrowth of 14.3% YoY led by 43.6% decline in UK sales due to distribution issues which have now been resolved. The Indore SEZ facility will start contributing to the topline by endQ2FY14E/ Q3FY14E on successful re-inspection approval which is expected in mid- April 2013. The revenue addition from this facility expected is Rs 700-800mn in six months of its operations during FY13E (20% of peak revenue potential). The company has kick started supplies of artesunate+amodiaquine and expects revenue contribution of Rs 350mn in FY14E from this product. Revenue guidance on Institutional business is now increased to Rs 3.8-3.9bn in FY13E and Rs 4.5- 4.6bn in FY14E.”
 
“EBITDA margins stood at 22.6% recording a decline of 190bps YoY. This was on account of higher raw material costs at 39.4% of sales (up 130bps YoY) and employee costs that inched up 60bps YoY at 14% of sales. Margins stood flat at 22.7% during 9MFY13 due to inclusion of (1) one-off provision of USD 2mn on account of increased PDUFA fees and (2) Rs 100mn incurred on R&D projects. Interest costs declined 27.1% to Rs 74mn while depreciation increased by 19.1% YoY to Rs 216mn The company has recorded forex loss of Rs 186mn during the quarter (forex loss of Rs 399mn – Q3FY12). Tax rate (on PBT excluding forex items) stood at 20.2% (17.8% in Q3FY12). PAT adjusted for forex impact grew 2.6% YoY to Rs 1.06bn.”
 
“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 branded promotional markets. Continued traction in domestic formulation revenues shall aid growth momentum. At CMP, the stock trades at 12.8x FY14E & 11.1x FY15E earnings. We recommend ‘Accumulate’ on the stock with a revised target price of Rs 572 (13x FY15E EPS),” says Dolat Capital research report.

Non-Institutions holding more than 90% in Indian cos

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