6 June 2012
Guides for healthy growth across segments; Early
USFDA approval of Indore SEZ key to ramp-up in US;
We met the management of IPCA Labs (IPCA IN, Mkt Cap USD0.8b, CMP INR340,
Buy). Key takeaways from the same:
Following a strong FY12, IPCA is set to do an encore in FY13 led by healthy
growth across business segments and benefit of favorable currency.
Though the management has not specifically guided for topline growth for
FY13, it has indicated healthy double digit revenue growth for all the major
business segments. API will continue to report single digit growth rate in
medium term due to increased internal consumption. Further, the company
has guided for 50bp improvement in margins for FY13 on the back of 200bp
improvement in FY12.
We expect a significant ramp-up in IPCA’s international formulations
revenues led by 35% CAGR for the US business and 24% CAGR in branded
formulations business. Also, the domestic business is expected to report
healthy growth in over next couple of years
Expect 27% EPS CAGR We expect IPCA to clock FY12-14 PAT and EPS CAGR of
27% on the back of 16% revenue CAGR coupled with margin expansion.
The stock is currently valued at 11.2x FY13E EPS and 9.5x FY14E EPS, and is at
25-50% discount to its historic and peer valuation.
Reiterate Buy with target price of INR500 (14x FY14E EPS).
India formulations - Likely to report robust growth in coming years led
by CVS, Pain management and cough & cold segments
After facing various headwinds in domestic formulation business in FY12,
IPCA seems to be back on healthy growth track and is expected to report
higher double digit-growth in this business over next couple of years.
IPCA’s India formulations business had reported muted growth of 8.2% in
FY12 due to: 1) Lower incidence of malaria in the country (IPCA is a leading
player in the anti-malarial market), 2) Divisional restructuring of the business
with the company forming 12 different focused divisions to ensure focused
product promotion and doctor coverage, and 3) Significant attrition in the