Neutral IPCA Laboratories; target of Rs 760: Motilal Oswal

Motilal Oswal's research report on IPCA Laboratories

We analyzed the form 483 issued to IPCA Lab (IPCA) at Piparia formulation site by USFDA. USFDA inspected the Piparia site of IPCA between April 18th and 26th and issued form 483 with three observations. The observations are related to Out-of-specification (OOS), Out-of-Trends (OOT), documentation of investigations/corrective and preventive action (CAPA) and responsibilities/authority toward Quality unit operations. We believe additional efforts would be necessary to address these regulatory concerns. Since most of the ANDAs held by IPCA are linked to its own API site at Ratlam, which is currently under import alert, it would be crucial to address the USFDA compliance issues at Ratlam to resume business in the US. We value IPCA at 21x 12M forward earnings to arrive at a price target of INR760. We reiterate our Neutral rating on the stock, owing to the expensive Unichem acquisition, gradual pick-up in generics exports, and limited upside potential from its current levels.

Outlook

We continue to value IPCA at 21x 12M forward earning to arrive at a price target of INR760. We reiterate our Neutral rating on the stock as there is limited upside potential from its current levels.