Prabhudas Lilladher recommended Hold rating on Ipca Laboratories with a target price of Rs 1962 in its research report dated August 12, 2020.
Prabhudas Lilladher's research report on Ipca Laboratories
1QFY21 earnings was much higher than our estimate due to 1) incremental revenue of Rs2.59bn related to HCQS and CQ supply 2) better gross margin for COVID led products at 80% v/s 66% company level for FY20 3) spillover of Rs260m revenue and 4) EBITDA margin at 40% due to lower marketing expense and operating leverage. We believe 1QFY21 was a one-off performance and replicating this would be difficult. We still find IPCA as one of the best mid-cap pharma companies due to 1) its API expansion plan 2) new launches in institutional segment 3) India formulations growth of 10-12%. But with recent sharp price run-up, its trades at challenging valuation of PE 28x (FY22E). We incorporate management guidance of incremental core EBITDA margin expansion of 50-100 bps each year and increase our PE multiple assigned to 27x (earlier 26x) due to better pricing environment in export markets.
We have increased EPS by 33%/2% for FY21/22E while 6% decreased for FY23E.We downgrade to HOLD (earlier Buy) and derive new TP of Rs1,962 (earlier Rs1,839) on 27x of FY22E.
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