Improved results during the first quarter seem to have triggered the rally as the uptrend has started after the announcement of the results.

For the first quarter, while sales recorded a jump of 16.28 per cent to Rs 75.99 crore, net profit was up by 32.7 per cent to Rs 6.82 crore. Control over raw material and depreciation of the rupee seem to have helped. Total expenditure recorded a jump of 13.51 per cent--much lower than the growth in revenues. For Ipca, export revenues account for around 47 per cent of the sales, 14 per cent of which is to the developed US market. As a result, the operating profit margin improved from 14.38 per cent to 16.42 per cent. In fact, had the interest burden not risen by 42 per cent to Rs 3.90 crore, net profit would have recorded a much higher growth.

During July,,sales have maintained the growth rate at Rs 28 crore. The launch of 10 new products in the domestic formulation market also had its impact on the performance.

The discounting for the stock has been steadily improving for the past 20 months and has now reached the level of 8, very low compared to the average pharmaceutical sector discounting, but reasonable for the segment in which it operates. The company has a strong presence in anti-malarial, anti-emetics and cardiovascular segments. It has a strong international presence and supplies drugs and intermediates to Teva of Israel, Sintofarm of Italy and Hoechst Celanese of the US. Apart from these regular clients, the company plans to supply intermediates to Merck of the US.

Ipca has a strong precence in the domestic formulation market. Five of its drugs are among the top 250 selling drugs in the country.

Ipca is also entering the natural product market for treatment of malaria-flaciparum, which accounts for 15 per cent of all malarial cases, bymanufacturing the bulk artimether (formulation to be branded as Larither). Ipca will be the first company to manufacture the bulk in the country. Currently, Rhone Poulenc has a formulation being sold under the brand name, the bulk drug of which is sourced from China. It is also likely that Rhone Poulenc will source this drug from Ipca. Apart from this, it is also introducing a quinine-based formulation for the anti-malarial segment under the name Cinkona. The main attraction of these drugs is that they will be outside the DPCO, while its existing formulation of chloroquine phosphate is under price control.

Apart from the 10 products launched in 1997-98, the company has a similar number in the pipeline. These products are in the high-margin macrolides, anti-malarial, anti-diabetic and anti-obesity segments. The series of new products will help the company record a good growth rate in the future. Apart from this, its turnover from the formulation division will improve, which should result in betterrealistaion.

The latest move in the scrip suggests that the market is willing to give higher discounting to the stock provided the company shows desired results. The series of new products launched by the company and prospects of new business in bulk drugs (the Merck case) should result in robust growth for the company.

Telco:

Thanks to reduced offtake, Telco has decided to start a five-day week at its Pimpri unit. The impact of this news was predictable and the stock weakened on Tuesday. Although the fundamental factors may not favour Telco at the moment as demand for automobiles has not been showing the desired results, the stock will continue to get good buying support at the lower levels, especially below Rs 120.

The logic of this argument is that all the possible negative factors including the investments required in the small car project have already been discounted by the market. Otherwise, what else could explain the recent jump in the stock price from Rs 117 to Rs 154. Be itshort-covering or anything else, the stock will continue to get strong buying support at lower levels.