Buy Ipca Laboratories; target of Rs 759: Angel

Angel Broking's report on Ipca Laboratories

"For 3QFY2015, IPCA Laboratories (IPCA) reported lower than expected numbers on all fronts, ie Sales, OPM and Net profit. Sales came in at Rs 734cr (V/s an estimated Rs 900cr), yoy dip of 9.9%. The dip was mainly on account of a decline in exports by 20.6% yoy to Rs 418cr, while domestic sales, at Rs 316cr, rose by 9.5% yoy. The domestic formulation business (Rs 279cr) grew by 13.1% yoy. On the operating front, the gross margin came down by 303bp, while the OPM dipped by 893bp, on account of lower sales. Thus, the PBT dipped by 58.5% yoy. Other income dipped by 43.7% yoy. The adj net profit dipped by 65.3% yoy to end the period at Rs 49cr; it came in much lower than an estimated Rs 130cr, mainly due to a lower than estimated OPM (we had estimated the OPM at 23.9%)."

"We expect net sales to post a 14.8% CAGR to Rs 4,213cr, and EPS to register a 6.7% CAGR to Rs 44.7 over FY2014–16E. The company’s financials will be impacted by the USFDA import alert on the Ratlam facility and 483s on the Indore and Silvassa facilities. The company will be inviting the USFDA to inspect its Ratlam facility in March 2015 for resolution of the warning letter problem. For the Indore and Silvassa units, the USFDA inspection will take place as and when it is due. While concerns persist, we still maintain our Buy on the stock with a price target of Rs 759, owing to attractive valuations", says Angel Broking research report.

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