Buy Ipca Laboratories; target of Rs 540: Motilal Oswal

Motilal Oswal is bullish on Ipca Laboratories and has recommended buy rating on the stock with a target of Rs 540 in its October 29, 2012 research report.

“IPCA's 2QFY13 net sales grew 24% to INR7.71b (est of INR7.1b). This was led by a 30% growth in formulation exports to INR3.39b (est of INR2.89b) and 35% growth in API exports to INR1.25b (est of INR1.1b). Strong growth in formulations exports was partly driven by spill-over of some consignments of institutional supplies from the June 2012 quarter.  EBITDA was up 13% to INR1.78b v/s est of INR1.64b. EBITDA margins at 23% are in line with estimate but down 210bp YoY due to adverse product-mix (GPM are at 59% compared to 60.6% YoY), merger of Tonira Pharma (which has lower margins) and a 34% increase in staff costs.”
“EBITDA was up 13% to INR1.78b v/s estimate of INR1.64b. EBITDA margins at 23% are in line with estimate but are down 210bp YoY due to adverse product-mix (GPM are at 59% compared to 60.6% YoY), merger of Tonira Pharma (which has lower margins) and a 34% increase in staff costs. Company has also provided ~INR50m (for the first time) in anticipation of the US FDA user fee related to past filings and site approvals. PAT was up 60% to INR1.25b v/s estimate of INR1.1b on a low base. Growth seems very high due to forex losses of INR588m for 2QFY12, compared to a forex gain of INR64m for 2QFY13; current forex hedges stand at ~USD106m. Company has announced an interim dividend of 100% (INR2/sh).”
“We expect significant ramp-up in IPCA's international formulations revenues led by 22% CAGR for the US business for FY12-14 and 26% CAGR in branded formulations exports. Domestic formulations growth is likely to recover to 16-17%, while the institutional business is likely to record 17% sales CAGR for FY12-14. Post 2QFY13 results, our estimates remain largely unchanged. Our estimates were conservative for India formulations, while the delayed ramp-up in the US business has been compensated by higher growth in API exports. We expect IPCA to clock FY12-14 EPS CAGR of 33% on the back of 18% revenue CAGR, coupled with 160bp 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 conservative management strategy and efficient capital allocation. The stock is valued at 15.3x FY13E EPS and 11.7x FY14E EPS. Reiterate buy with a target price of INR540 (14x FY14E EPS),” says Motilal Oswal research report Public holding more than 90% in Indian cos. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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