Buy Ipca Laboratories; target Rs 551: P Lilladher

Prabhudas Lilladher is bullish on Ipca Laboratories and has recommended buy rating on the stock with a target price of Rs 551 in its October 29, 2012 research report.

"IPCA’s Q2FY13 result was in line with our estimates led by strong growth in international business. However, EBITDA margins were partly impacted due to oneoff expenses duing the quarter. The company continues to report strong performance with improving profitability. At the current price, the stock trades at 14.7x FY13E and 11.4x FY14E earnings. Maintain ‘BUY’ with target price of Rs 551.

Top-line growth led by international business: IPCA’s revenue for the quarter reported growth of 23.7% YoY to Rs7.71bn, primarily led by international formulation and API business. However, the domestic formulation business reported slightly lower growth of 14.6% to Rs2.6bn due to weak performance of anti-malaria segment on account of lower incidence of disease.

Adjusted PAT grew by 60.5%: The company reported 13.1% YoY increase in EBITDA during the quarter to Rs1.8bn, while EBITDA margins contracted by 210bps YoY to 23.2% on a high base. Despite muted growth in EBITDA, PAT reported strong growth of 60.5% to Rs1.3bn due to forex gain reported during the quarter versus forex loss reported in Q2FY12.

Valuation and View: We expect 34% earnings CAGR over FY12-14 on the back of 17% revenue CAGR and 180bps 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 Rs3.5bn. The stock is currently valued at 14.7x FY13E EPS and 11.4x FY14E EPS. The stock trades at 25-50% discount to its historic and peer valuation. Reiterate ‘BUY’ with target price of Rs 551," says Prabhudas Lilladher research report.

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