25 February 2020
Update | Sector: Healthcare
A dose of growth
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
180.2 / 2.5
1508 / 784
We recently met management of Ipca Laboratories (IPCA) to understand the growth
prospects in the business and ascertain the impact of the ongoing coronavirus outbreak-
led supply disruption.
IPCA appears well positioned to deliver strong earnings CAGR of 26% over FY19-22,
led by its strong outperformance in Domestic Formulation (DF), improved prospects
in API and revival in International Generics.
We value IPCA at 22x 12M forward earnings to arrive at a price target of INR1,660.
Superior execution, lower financial leverage and healthy return ratios reinforce our
positive stance on the company. Reiterate Buy.
Financials Snapshot (INR b)
2020E 2021E 2022E
46.6 53.3 60.4
9.5 11.4 13.1
6.5 8.0 9.2
EBIT Margin (%)
16.1 17.5 18.1
Cons. Adj. EPS (INR) 51.5 63.1 72.9
42.0 22.5 15.5
EPS Gr. (%)
291.8 345.5 407.5
0.1 0.1 0.1
19.1 19.8 19.4
17.7 18.4 18.3
14.9 15.0 15.0
27.7 22.6 19.6
18.7 15.2 12.8
Div. Yield (%)
0.6 0.7 0.8
FCF Yield (%)
2.6 3.2 3.7
3.8 3.3 2.8
Shareholding pattern (%)
Dec-19 Sep-19 Dec-18
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
DF – on a robust growth trajectory
IPCA remains confident that it will outperform industry with 14-15% CAGR in
DF segment over the next three years. The plan to add 250-300 MRs over the
next 6-9 months emphasizes its incessant focus on this segment.
Pain management prospects appear particularly promising, with IPCA
comfortably surpassing industry growth (8-10%) with a CAGR of 17% over
FY14-19 and 20% growth in 9MFY20. Growth in this therapy is mostly volume
driven (70-75%), implying its sustainability over the next 3-4 years. IPCA plans
to add two more SKUs in pain management in FY21.
The Zerodol group of brands has reached a revenue size of ~INR4b with
potential to double over 3-4 years. While Zerodol brand is not included under
NLEM, the price risk is minimal as product pricing under this brand is already
lower than peers.
IPCA has done well in rheumatoid arthritis and enhancing its efforts in terms of
training and educating doctors for disease modifying anti-rheumatic drugs.
Specifically, nearly 230MRs are dedicated for this therapy with intensive
Another promising product is chlorthalidone and its combination, which has
reached a revenue size of INR1b in the past four years with attractive medium-
term potential. According to management, chlorthalidone is a proven (after
study/trials) better substitute to hydrochlorothiazide to treat hypertension
with advantage such as (a) longer half-life and thus prolonged effect and (2)
need for lower concentration for similar effect.
Also, the promotion of HCQs in diabetes is gaining acceptance, driving growth
in this product.
The proportion of seasonality led anti-malaria segment declined sharply from
17% in FY13 to 6% in FY19 with further gradual reduction thereafter in
API – in a capacity expansion mode
IPCA delivered strong 33% YoY growth in API segment in 9MFY20, led by robust
off-take in existing molecules and addition of new molecules (Sartans).
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.
Tushar Manudhane - Research Analyst
(Tushar.Manudhane@MotilalOswal.com); +91 022 6129 1536
Hitakshi Chandrani - Research Analyst