Neutral IPCA Laboratories; target of Rs 860: Motilal Oswal

Motilal Oswal's research report on IPCA Laboratories

IPCA has received a voluntary action indicated (VAI) classification from the USFDA for its Ratlam API and Silvassa formulation plant. The US business was at a standstill since IPCA had an import alert from the USFDA across its sites since CY15. The considerable remediation measures have finally led to the revival of the US generics business for IPCA. We expect a gradual pick-up of the existing US operations, which will also pave the way for new approvals. Another key event over the near term is the USFDA classification of its Pithampur formulation site. We value IPCA at 28x 12M forward earnings to arrive at our TP of INR860. We expect 27% earnings CAGR over FY23-25 given the low base of FY23 (elevated opex) and revival in the generics business. We reiterate our Neutral rating as the earnings upsides over the next 2-3 years are adequately factored in at current valuation.

Outlook

We value IPCA at 28x 12M forward earnings to arrive at our TP of INR860. We reiterate our Neutral rating as the earnings upsides over the next 2-3 years are adequately factored in at current valuation.