Accumulate Ipca Laboratories; target of Rs 1008: Prabhudas Lilladher

Prabhudas Lilladher's research report on Ipca Laboratories

IPCA beats in Q1FY20 as its sales, EBITDA and PAT grew by 4%, 36% and 50% above our estimates. IPCA took the benefit of high demand and price of Sartan APIs in global markets (mainly EU) due to contamination issues. The higher contribution of Sartan APIs increased API contribution to 30% in Q1FY20 from its average contribution of 25%. This has resulted in higher material costs and lower gross margin by 360bps QoQ. Management guided that normalized gross margin will return from Q2FY20E onwards. The higher material costs also contributed from the higher price of material by 100bps out of 360bps in Q1FY20. IPCA is global leader in losartan production (Rs1.2bn sales in FY19) and its valsartan sales is improving from current run rate of Rs25m/month. It guided more than 20% growth in API sales in FY20E.

Outlook

IPCA trades at PER of 22x (FY20E) and 18.3x (FY21E). With better visibility of exports, we increase our TP to Rs1,008 (from Rs908) on PE 20xof FY21 earnings while downgrade our ratings to 'Accumulate' as upside potential at current valuation is 8%.

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