Emkay Global Financial is bullish on IPCA Laboratories has recommended buy rating on the stock with a target price of Rs 1782 in its research report dated June 17, 2020.
Emkay Global Financial's report on IPCA Laboratories
Deferred shipments due to Covid-19 led to a 7% miss in revenues and 15% in operating profits. Shipments should normalize in Q1. Due to negative operating leverage, margins were 200bps below estimates even as gross margins improved. India growth was robust at 21% yoy, and IQVIA data shows Ipca is witnessing positive growth in April/May as well, compared to a low double-digit decline for the industry. Q1 will also benefit from higher HCQS sales (~Rs420mn additional sales to the govt). 14-17% revenue growth guidance is better than expected and underpins management's confidence in growth recovery. Ipca also guided for ~150bps margin expansion (assuming Rs/$ is constant at Rs75) led by higher utilization of a few facilities.
We have consistently highlighted the strong operating leverage in Ipca's business model and strong FY21 guidance, despite a weak macro, reinforce our view. We raise FY21/22E EPS by 7%/5% and retain Buy, with a revised TP of Rs1,782. Maintain OW in EAP.
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