Ipca Lab shares slip over 10% on Friday; should you Buy, SELL or HOLD?

By: | Published: April 11, 2016 2:09 PM

Ipca Laboratories (Ipca Labs) shares slid 10.58 per cent on Friday after the company has been denied allocation of Artemisinin-based Combination Therapy (ACT) by the Global Fund

Ipca Laboratories shares, should you buy ipca sharesIpca Laboratories (Ipca Labs) shares slid 10.58 per cent on Friday after the company has been denied allocation of Artemisinin-based Combination Therapy (ACT) by the Global Fund (Reuters)

Ipca Laboratories (Ipca Labs) shares slid 10.58 per cent on Friday after the company has been denied allocation of Artemisinin-based Combination Therapy (ACT) by the Global Fund, Geneva in the light of the warning letter issued to the company by the US Food and Drug Administration (USFDA) after they re-assessed the situation. WHO recommends artemisinin-based combination therapies (ACTs) for the treatment of uncomplicated malaria.

The Global Fund said that they will only source ACT from other pre-qualified suppliers that have no outstanding issues with the regulators. At present, there is no business from the Global Fund in FY2016.

According to the warning letter sent by the USFDA over the three plants, its inspectors observed systemic data manipulation and other current good manufacturing practices (CGMP) violations and deviations at the company’s three facilities. The three plants are located at Ratlam, Pithampur (Madhya Pradesh) and Piparia (Silvassa).

Below are the reactions of some brokerage houses post the step taken by the Geneva-based fund which accounts for around 70 per cent of total institutional business in Africa.

Sharekhan
What is said: It’s a negative news for Ipca Labs as it anticipated some business allocation from the Global Fund on receiving clearance from the World Health Organisation (WHO), Geneva, for Ratlam facility. Sharekhan has revised downward sales estimates by 4.5 per cent each in FY2017E and FY2018E and earnings estimates by 9 per cent and 8 per cent respectively.

Sharekhan maintained ‘Hold’ rating on the stock with a revised price target of Rs 604.

JM Financial:
What is said: The loss of Global Funds contract is a significant negative for Ipca as the management-guided recovery in institutional business hinged on winning Global Funds contract.

Edelweiss
What it said: There are multiple challenges ahead for Ipca with three of its facilities under import alerts and US business recovery uncertain as it entirely depends on further action by USFDA, both nature and timeline of which cannot be predicted. Additionally, management’s bandwidth split between various businesses/regulatory challenges could slowdown recovery. Edelweiss maintains ‘Reduce’ rating on Ipca shares with target price of Rs 440.

The scrip closed at Rs 499.30 on April 8.

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