Ipca has done well in rheumatoid arthritis and enhancing its efforts in terms of training and educating doctors for disease-modifying anti-rheumatic drugs.
We recently met the management of Ipca Laboratories 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, improved prospects in API and revival in international generics. We value Ipca at 22x12M forward earnings to arrive at a price target of Rs 1,660. Superior execution, lower financial leverage and healthy return ratios reinforce our positive stance on the company. Reiterate ‘buy’.
Ipca remains confident that it will outperform the industry with a 14-15% CAGR in the DF segment over the next three years. The plan to add 250-300 MRs over the next 6-9 months emphasises 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 M9FY20. 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 ~Rs 400 crore with potential to double over 3-4 years.
While the 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 patient engagement. Another promising product is chlorthalidone and its combination, which has reached a revenue size of Rs 100 crore in the past four years with attractive medium-term potential.