Hold IPCA Laboratories; target of Rs 790: Sharekhan

Sharekhan's research report on IPCA Laboratories

IPCA Laboratories has agreed to acquire a 33.4% stake in Unichem Laboratories Ltd and an additional 26% shareholding through a public offer at Rs. 440 per share, which will amount to a total consideration of ~ Rs. 1,840 crore. The deal has taken place at ~ 2.3x Unichem’s LTM sales of Rs. 1,311 crore and at an exorbitant EV/EBITDA of ~ 512x its LTM EBITDA of Rs. 6 crore, ending Dec 22. The acquisition will help IPCA Labs to gain entry in the lucrative yet competitive market of the US with the help of Unichem’s regulatory compliant facilities. However, we also believe the acquisition will be earnings dilutive over short – medium term, for combined entity.

Outlook

At CMP, the stock trades at higher levels at 24.1x/18.8x its FY24E/FY25E EPS compared to the peers trading at an average 20.8x/17.2x multiples on their FY24E and FY25E EPS. Hence, we maintain HOLD rating on the shares with a changed PT of Rs. 790.