9 November 2020
2QFY21 Results Update | Sector: Healthcare
Ipca Laboratories
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
IPCA IN
126
287.2 / 4
2456 / 1053
2/11/106
650
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
46.5 56.6 62.6
Sales
9.6 16.1 16.3
EBITDA
6.5 11.8 12.0
Adj. PAT
EBIT Margin (%)
16.1 24.7 22.2
51.4 93.7 94.9
Cons. Adj. EPS (INR)
41.6 82.4
1.3
EPS Gr. (%)
286.5 366.8 447.5
BV/Sh. (INR)
Ratios
Net D:E
0.1
0.0 -0.1
19.2 28.7 23.3
RoE (%)
17.7 26.2 21.8
RoCE (%)
Payout (%)
14.8 14.9 15.0
Valuations
44.3 24.3 24.0
P/E (x)
30.3 17.7 17.2
EV/EBITDA (x)
Div. Yield (%)
0.3
0.6
0.6
FCF Yield (%)
0.6
2.3
2.4
6.2
5.0
4.5
EV/Sales (x)
CMP: INR2,265
TP: INR2,680 (+18%)
Product mix, reduced operating cost drive earnings
Multiple factors in place to sustain growth momentum
Buy
Ipca Laboratories (IPCA) delivered a better-than-expected quarter, led by a
superior product mix and lower opex. A growing connect between patient,
doctor, and marketing representative (MR) with the easing of the lockdown
presents a better outlook in Domestic Formulation (DF) segment. Favorable
demand for APIs and healthy traction in the EU/Institutional segment is
further strengthening the earnings growth momentum for IPCA.
We raise our EPS estimate by 5%/7% for FY21/FY22, factoring in a) an
extended cost savings benefit in DF, b) improving demand in the Cough-Cold
and Dermatology therapies, c) revival in the UK business, and d)
debottlenecking in the API segment. We also introduce FY23 estimates. We
value IPCA at 25x 12M forward earnings to arrive at Target Price of
INR2,680. We remain positive on IPCA on the back of steady
outperformance in the DF segment, cost efficiency in API, and launches
under its own label in the UK segment. Reiterate Buy.
IPCA’s 2QFY21 sales were up 6% YoY to INR13.6b (in-line), led by growth in
API and Exports Formulation – Institutional (EFI) / Generics (EFG).
API sales grew 21% YoY to INR3.8b (28% of sales). EFI/EFG grew 7%/33% YoY
to INR1.9b/INR819m (14%/6% of sales).
DF sales were steady YoY at INR5.4b (39% of sales). Branded Exports
Formulation sales declined 9% YoY to INR914m (7% of sales). Other
operating income and revenue from subsidiaries declined 6% YoY to
INR802m.
The gross margin was up 250bp YoY to 67.5% on a product mix change.
The EBITDA margin expanded ~580bp YoY (to 26.5%) owing to a better gross
margin and strong operating leverage (other expenses down 390bp YoY).
EBITDA grew 35.5% YoY to INR3.6b (est. INR3.3b).
Ipca had one-time forex gains of INR171m in 2QFY21.
Adjusting for the same, PAT grew 31% YoY to INR2.5b (est. INR2.4b).
For 1HFY21, revenue / EBITDA / adj. PAT grew 22.6%/104.2%/121.6% YoY to
INR29b/INR9.5b/INR7b.
IPCA guided for 10–12% YoY growth in overall sales for 2HFY21. Particularly,
DF / API / Branded Exports Formulation sales would grow 10%/18–20%/10–
11% YoY in 2HFY21.
Ipca would incur capex worth INR2b for FY21 and INR3–3.5b for FY22.
EBITDA margins are expected to be 25–27% for FY22.
Lower crude oil prices would keep raw material prices in check.
Export incentive benefits of INR120–130m are not included in this quarter
due to uncertainty over the scheme.
Controlled costs lead to strong YoY earnings growth
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-20
46.1
28.9
12.4
12.6
Jun-20
46.1
28.2
12.4
13.3
Sep-19
46.1
24.1
16.1
13.7
FII Includes depository receipts
Highlights from management commentary
Research Analyst: Tushar Manudhane
(Tushar.Manudhane@motilaloswal.com)
Bharat Hegde, CFA
(Bharat.Hegde@motilaloswal.com)
/ Hitakshi Chandrani
(Hitakshi.Chandrani@MotilalOswal.com);
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.