CLSA upgrades IPCA Labs but cuts EPS on flat sales guidance

Moneycontrol Bureau

CLSA has upgraded IPCA Labs to buy with a reduced target price of Rs 500 from Rs 615. It has also cut FY17/FY18 earnings per share (EPS) by 35 percent/28 percent due to flat sales guidance on the institutional business and slower ramp up in Hydroxychloroquine (HCQS) supplies.

IPCA has lost 50 percent of its market cap in the past year due to the US FDA issues at three facilities and its impact on other businesses. According to the brokerage firm, India business growth has remained resilient in the turmoil. IPCA’s key international businesses like the US and institutional malaria business were impacted by US FDA issues in FY16. The EU business too declined in second half of FY16 due to manufacturing constraints and API unavailability. 

Ipca expects India business to grow 11-12 percent in FY17 led by cardio and pain therapies. India business sales can be higher if the malaria season is stronger than expected. It sees EU business recovering in FY17 as manufacturing constraints have been resolved.

"While recovery in the core business will be slow and operating leverage benefit will take time to come, we believe the stock has limited downside, as it largely captures the value of the India business," CLSA says in a report.