Accumulate Ipca Labs; target of 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 September 14, 2012 research report.

“IPCA has transformed itself from a leading API manufacturer to a fully integrated formulation company. We anticipate domestic formulations to sustain growth trajectory from hereon (16% CAGR over FY12-14E) aided by growth in CVS & pain management. We expect export formulations to register 21% growth over FY12-14E mainly driven by increasing ramp up in its US generics biz and higher contribution from institutional based sales. The Indore SEZ will contribute revenue of ` 300-400mn in FY13E (all of it in Q4FY13E) and ` 1bn in FY14E. Approvals from the recently FDA approved Indore SEZ facility (approx 12-14 filings so far) is expected to kick in Oct-Nov’12 onwards. The management appears confident of US generics business to reach USD100mn by FY16E. EBITDA margin guidance for the year is an improvement of 225bps YoY (150bps shall be forex benefit). The management re-iterates its long term growth strategy - doubling of revenues every four years.”

“Despite being a late entrant in the US, the company is confident of garnering at least 20% market share (witnessed earlier with launches through Ranbaxy) owing to backward integrated manufacturing capabilities. Entered into a profit-sharing agreement with Ranbaxy for marketing most of its products in US. The agreement is valid for 5 years from the launch of a product. Under the agreement, the company will share 10% sales and 50% of profit with Ranbaxy. IPCA enjoys as low as 20% and as high as 70% market share in the products it manufactures and sells. This is due to its fully integrated capabilities. So far, a total of 25 ANDAs have been filed (12 approved) in US. Of them, 7-8 are from Indore SEZ and another 5 will be filed from the facility this year, taking the total to 12-13 products. Approvals are expected to start from Oct 2012. Besides, the company has also applied for 5-6 site transfers, which will be approved in Feb 2013. The Indore SEZ will contribute revenue of ` 300-400mn in FY13E (all of it in Q4FY13E) and ` 1bn in FY14E. Revenue contribution is subject to timely product approvals by the FDA.”

"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. We have increased our FY14E EPS estimate by 4% to reflect higher profit margins aided by favorable sales mix & operating leverage benefits from Indore SEZ. At CMP, the stock trades at 14.1x FY13E and 11.8x FY14E earnings. We recommend accumulate on the stock with a revised target price of Rs 487 (13x FY14E EPS),” says Dolat Capital research report."

FIIs holding more than 30% 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

Read More