Buy Ipca Labs; target of Rs 645: Motilal Oswal

Motilal Oswal is bullish on Ipca Laboratories and has recommended buy rating on the stock with a target of Rs 645 in its February 1, 2013 research report.
 
“IPCA's 3QFY13 results were below expectations. Topline grew 14% YoY to INR7b (v/s our estimate of 18.6% YoY growth to INR7.3b). Domestic formulations grew 13.4% YoY (v/s our estimate of 17.5%), while export formulations grew 9.5% YoY (v/s our estimate of 12%). Total APIs grew 30% YoY (v/s our estimate of 36% YoY growth). EBITDA grew 4.7% YoY to INR1.58b, below our estimate of INR1.77b. EBITDA margin contracted 200bp YoY to 22.6% (v/s estimate of 24.3%) due to lower price realization on Artemisinin sales (expected to normalize from February 2013) and one-time expenses of INR200m incurred towards US operations. PAT grew 37.5% YoY to INR879m, slightly below our estimate of INR887m. PAT growth was higher than EBITDA growth due to lower forex loss at INR186m (loss of INR400m in 3QFY12) and lower tax rate of 23.4% (26% last year).”
 
“We expect significant ramp-up in IPCA's international formulations revenue, led by 25% CAGR for both branded formulations and the US business over FY12- 15. Domestic formulations growth is likely to recover to 16% while the institutional business is likely to record 19% sales CAGR for FY12-15. We have cut our FY13 EPS estimate by 4% to reflect temporary disruption in operations coupled with increased pressure on EBITDA margins. However, we maintain our estimates for FY14/15. We expect IPCA to clock EPS CAGR of 28% over FY12-15 on the back of 17% revenue CAGR, coupled with 180bp EBITDA margin expansion and reversal of MTM forex losses. Return ratios continue to be strong, with RoCE of ~28% and RoE of 27%, which reflect the conservative management strategy and efficient capital allocation. The stock is currently valued at 12.5x FY14E and 10.7x FY15E EPS. We reiterate Buy with a target price of INR645 (14x FY15E EPS),” says Motilal Oswal research report.

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