Hold Ipca Laboratories; target of Rs 750: Prabhudas Lilladher

Prabhudas Lilladher's research report on Ipca Laboratories

IPCA Labs (IPCA) has entered into a definitive agreement to buy 33.4% promoter stake of Unichem Laboratories (Unichem). The acquisition will allow IPCA to re-enter US formulation generic market, however at 2.3x sales, as acquisition cost is expensive in our view given challenges and uncertainty associated with US market. We do believe that Ipca has a huge scope to improve its operational efficiencies and potentially scale up OPM to +15% from current level of 6-7% in near term. The company has also guided for Rs3bn annual EBITDA from Unichem business within 2 years of taking management control. Even after factoring this, acquisition cost works out to be at 10x EV/EBITDA and largely EPS neutral in FY25E, however RoE/RoCE will be dilutive by ~200bps. Historically Ipca has done few acquisitions, but with size like Unichem will test management bandwidth and execution capabilities.

Outlook

Maintain ‘HOLD’ rating with revised TP of Rs 750/share (Rs865 earlier) at 20x FY25E EPS.