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Ipca Labs Overview

IPCA Laboratories Ltd. is a vertically integrated leading pharmaceutical company served world wide the company founded in 1946 working Head quarters in Mumbai,India. Ipca Laboratories manufacturing both formulations & Active Pharmaceutical Ingredients and having a strong thrust on exports. IPCA manufactures over 350 formulations and Eighty Active Pharmaceutical Ingredients for various therapeutic segments. Ipca Laboratories exports products to over One Hundred Ten countries globally including Africa, Asia, Australia, Europe and the US. IPCA has seven production units and is the world's largest manufacturer and supplier for Twelve Active Pharmaceutical Ingredients. These are formed right from the fundamental stage at manufacturing facilities certified by the world's most astute drug regulatory authorities like USFDA, UK-MHRA, EDQM-Europe, WHO-Geneva and many more. IPCA Labs is a treatment leader in India for anti-malarias with a market-share of over 34 percent with a fast mounting charisma in the international market as glowing. The company also leads in disease modifying anti-rheumatic drugs (DMARDs). The Founders are Mr. K.B Mehla and Dr. N.S TIbrawala and the key people were Mr. Prem Chand Godha MD, Mr. A.K Jain, JMD

Ipca Labs Financial Analysis

IPCA reported better than expected Q2FY14 numbers with topline growth of 10 percent YoY at Rs 834 crs driven by exports which grew by 11 percent YoY. Exports contributed 62.1 percent while Domestic business contributed 37.9 percent to the revenues. EBITDA at Rs.234Crs was up 31 percent YoY and 37 percent QoQ. The highlight of the quarter is the highest ever Gross Profit Margin of 66.5 percent (up 660bps) primarily on the back of product mix change and favorable currency. EBITDA Margin improved spectacularly by 440bps to 27.7 percent against 23.3 percent last quarter (Last 9 quarter average - 22 percent). This along with reduction in interest expenditure during the quarter resulted in Net profit of Rs 162 crs up 50 percent QoQ and 34.5 percent YoY.

APIs (23 percent of the turnover) registered a healthy growth of 26 percent whereas formulations (77 percent of the turnover) on the other hand grew by just 6 percent YoY on account of postponement of revenue of Rs.40Crs from global tenders and lower Anti-malarial sales due to shift in focus to higher margin products. IPCA filed one Abbreviated New Drug Application (ANDA) during the quarter taking total Abbreviated New Drug Application filings to Thirty Six and it received one product approval taking the total product approval to sixteen in this quarter.

Positives Factors to watch the Stock

Focus on high margin product segments: IPCA Laboratories has been thriving in changing its business focus to the high-margin constant and daily life segments from the low-margin anti-malarial segment. The persistent and way of life segment, comprising CVS, Anti-diabetics, Pain-management, Central Nervous System and dermatology products, now constitute more than 50 percent of the Ipca Labs home formulation sales.

USFDA Approval to Indore SEZ plant: IPCA's Indore facility has received US Food and Drug Administration (FDA) clearance to manufacture oral formulations. With US Food and Drug Administration approval in place, the company is expecting to launch 6-7 products in the next 15-18 months, commencing from Q4FY14. It is expected to generate around Rs.80-100Crs in FY15E.

Exports to be the growth engine: IPCA has been escalating its saturation in regulated markets, like Europe and US, by mounting the list of generic drugs backed by its own Active Pharmaceutical Ingredients. In the emerging and semi-regulated markets, IPCA Labs policy to focus on edifice brands in the CVS, CNS, pain-management and anti-malarial segments along with tapping new geographies. Exports are expected to grow at a CAGR of 17 percent over FY2013-15E.

New marketing tie ups: Apart from its existing marketing tie-ups (3 partners currently), IPCA is in the process of signing agreements with two new partners. This will take the total number of products under tie-ups up from 30 to more than 75. Driven by these tie-ups, we believe IPCA's will post USD 107 mn revenues in FY16E with a CAGR of 47 percent.

Ipca Labs Valuations

Incremental US revenues from the newly commercialized Indore SEZ, robust exports and steady tender segment, improving product mix and the increasing traction in the domestic formulations business will remain key drivers for revenue growth. Improving operating leverage will lead to expansion in EBITDTA margins over FY13-16E and improving free cash flow generation. The management has increased the revenue growth guidance from 16-18 percent to 18-20 percent and 200-250 bps improvement in earlier EBITDA margins guidance of 20-22 percent.

Ipca Laboratories stock trading at P/E of 24.9xFY13, 18.2xFY14E and 15.8xFY15E, with the EPS of 30.3, 41.4 & 47.7 respectively. The valuation though a trifle rich is based on the positive view of the market on export oriented pharma units and the expected growth in the future days. Consistency in the performance, strong revenue visibility and incremental earning guidance by the management make us positive on the stock. IPCA Laboratories Ltd is trading at Rs. 770; we are recommending buying at Rs. 770-750 levels for investment horizon; it may touch Rs. 950 in a time period 6-9 months.

Bse Id: 524494

Nse Id: Ipcalab

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Mr. Kiran Kumar Reddy, Technical Analyst and Founder of Charanwings Advisory Services providing trading advisory services in Equity, Derivatives and Commodity. He provides advisory services to large number of retail as well as Institutional Investors and traders and His advisory services giving back support to various broking houses and product support in Stock Futures, Commodity to Dalal Street Investment Journal since May 2012. He is also having good command in elliot wave theory his articles have also been published in various financial websites and he is also contributing daily news letter on equity market, which were published in Indian notes website. He also made a guest appearance in various workshops which were conducted on stock market awareness

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