Buy Ipca Laboratories; target Rs 710: P Lilladher

Prabhudas Lilladher is bullish on Ipca Laboratories (Ipca) and has recommended buy rating on the stock with a target price of Rs 710 in its January 31, 2013 research report.

IPCA's Q3FY13 result was below our estimates due to muted growth in formulation business. EBITDA margins were partly impacted due to one-off expenses duing the quarter. The company is expected to reort strong performance with improving profitability going forward. At the current price, the stock trades at 18.5x FY13E and 13.3x FY14E earnings.

IPCA's revenue for the quarter reported muted growth of 14% YoY to Rs7bn, primarily impacted by formulation business due to weak performance of anti-malaria segment in India and distribution issues in UK. However, the API business reported strong growth of 30% YoY to Rs1.62bn.

The company reported muted growth of 4.7% YoY in EBITDA during the quarter to Rs1.6bn, while EBITDA margins contracted by 200bps YoY to 22.6% on a high base. Despite muted growth in EBITDA, PAT reported strong growth of 37.5% to Rs879mn due to lower forex losses reported during the quarter versus forex loss reported in Q3FY12.

We expect 34% earnings CAGR over FY12-14 on the back of 18% revenue CAGR and 120bps margin expansion. EPS growth is higher than EBITDA growth due to absence of large forex losses reported in FY12. Further, despite Rs5bn capex over FY13-14 (to sustain growth), the company is likely to record healthy return ratios, low gearing and free cash-flow of Rs3bn. The stock is currently valued at 18.5x FY13E EPS and 13.3x FY14E EPS. The stock trades at 25-50% discount to its peer valuation. Reiterate BUY with target price of Rs 710," says Prabhudas Lilladher research report.

Quarterly Shifts by Morgan Stanley

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