Accumulate IPCA Laboratories - Dolat Capital

IPCA has transformed itself from a leading API manufacturer to a fully integrated formulation company. We anticipate domestic formulations to sustain growth trajectory from hereon (16% CAGR over FY12-14E) aided by growth in CVS & pain management. We expect export formulations to register 21% growth over FY12-14E mainly driven by increasing ramp up in its US generics biz and higher contribution from institutional based sales. The Indore SEZ will contribute revenue of Rs. 300-400mn in FY13E (all of it in Q4FY13E) and Rs. 1bn in FY14E. Approvals from the recently FDA approved Indore SEZ facility (approx 12-14 filings so far) is expected to kick in Oct-Nov'12 onwards. The management appears confident of US generics business to reach USD100mn by FY16E.

EBITDA margin guidance for the year is an improvement of 225bps YoY (150bps shall be forex benefit). The management re-iterates its long term growth strategy - doubling of revenues every four years.

Valuation

IPCA's growth mantra revolves around creating a competitive position in formulations by leveraging on its API goldmine. We expect acceleration in export formulation revenues mainly led by the generics arm (US market in particular post FDA approval to its Indore site) and sustained growth in branded promotional markets. Healthy rebound in domestic formulation revenues hereon shall add to growth momentum.

We have increased our FY14E EPS estimate by 4% to reflect higher profit margins aided by favourable sales mix & operating leverage benefits from Indore SEZ.

At CMP, the stock trades at 14.1x FY13E and 11.8x FY14E earnings. We recommend 'Accumulate' on the stock with a revised target price of Rs. 487 (13x FY14E EPS).

Source : Equity Bulls

Keywords