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Last Updated : Apr 08, 2016 10:46 AM IST | Source: CNBC-TV18

Positive on IPCA, but see 4% impact on earnings: Phillip Capital

Surya Patra, pharma analyst at Phillip Capital now estimates IPCA's institutional revenues to fall to around Rs 200 crore, from its earlier estimate of around Rs 260 crore

IPCA Labs on Thursday said that the Global Fund to Fight AIDS, Tuberculosis and Malaria, would no longer buy the company's anti-malarial treatments because of the US FDA warning about quality issues at its factories.

Surya Patra, pharma analyst at Phillip Capital expects a 4 percent hit to the company's full year earnings as a result of the development.

Below is the verbatim transcript of Surya Patra’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.

Sonia: Could you start by telling us what the downside on IPCA could be? We are used to so much volatility in the stock, but because of this news flow, how much of a setback do you think we could see on IPCA?

A: In fact, we were expecting normalised supply of this anti artemisinin-based combination therapy (ACT) based drugs to selling global fund starting first quarter FY17. And accordingly, we have been building something like Rs 260 odd crore kind of a number on the total institutional business in FY17 and of this global fund accounts for 70 percent of the total estimated number. So, near about Rs 200 crore kind of a revenue that would be impacted because of this order flow that we have seen from the global fund.

And on the revenue front, it is just around 5.4 percent kind of a total estimated revenue for FY17. But on the earnings implications, it would be slightly lower, in the range of around 4 percent kind of an impact which we will be seeing on the estimated earnings.

Latha: So, what is your call on the stock now?

A: We are positive. We were actually positive considering the fact that possibly the US will see a pick up starting first quarter and again, the normalcy that we were anticipating in the institutional business. The institutional business revenue stream itself is getting downgraded significantly because of this kind of news, so we will to some extent revise down our numbers accordingly. We have not yet released any reports. Earlier it was a buy recommendation, but now we will just work on our numbers and accordingly we will recommend.

Sonia: One word on the other companies that have received the ACT orders, like Cipla, Strides Shasun, Ajanta Pharma. Ajanta Pharma has received similar allocations for ACTs as last year. So, any positives on any of these stocks?

A: It will be obviously whatever the gap that will be seen from the IPCA side, that would be accordingly distributed among the leading names like Ajanta Pharma, Cipla and Strides. Anyway it is a smaller play in that part, but all will be benefitted out of it. It is not that any lumpy impact would be seen in one specific name. But everybody will be benefitted out of it.

Latha: Would you be happier off buying Ajanta Pharma if you have it in coverage? Is it a buy, any price changes?

A: On the face of it, it had looked like that, but considering the price point and the valuation multiple on that, one has to really see. We do not have a coverage on that.

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First Published on Apr 8, 2016 09:13 am
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