Accumulate Ipca Laboratories; target Rs 487: Dolat Capital

Dolat Capital is bullish on Ipca Laboratories and has recommended accumulate rating on the stock with a target of Rs 487 in its October 30, 2012 research report.

“IPCA Labs’ recorded revenue growth of 23.7% YoY to Rs 7.71bn, driven by healthy growth in branded and institutional tender business. Domestic formulations reported a healthy growth of 14.6% YoY at Rs 2.63bn. Export formulations registered a growth of 30.2% YoY to Rs 3.39bn, with branded & institutional tender business growing 70.6% & 42.7% YoY, respectively. Generic business grew a moderate 6.9% YoY, with muted performance in UK. The Indore SEZ facility will start contributing to the topline by Q1FY14E once the approvals start kicking in (peak sales of USD 100mn).”

“EBITDA margins stood at 23.2% (-190bps YoY) during the quarter. This was on account of higher raw material (+130bps YoY) and staff (+130bps YoY) costs. Other expenses included (1) one-off provision of USD 1mn on account of PDUFA and (2) higher R&D expenses on a 505(b)(2) projects. The company has recorded forex gain of Rs 64mn during the quarter (forex loss of Rs 272mn – Q2FY12). Tax rate (on PBT excluding forex items) stood at 25% (20% in Q2FY12). PAT adjusted for forex impact grew 12.9% YoY to Rs 1.18bn. The management maintains its revenue growth guidance of 18% for FY13E and has guided for 100bps YoY improvement in EBITDA margins provided the USD/ INR remain at current levels.”

“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. Healthy rebound in domestic formulation revenues hereon shall add to growth momentum. At CMP, the stock trades at 14.3x FY13E and 12.1x FY14E earnings. We recommend ‘accumulate’ on the stock with a target price of Rs 487 (13x FY14E EPS),” says Dolat Capital research report.

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