Ipca Laboratories Rating ‘Buy’; margins were higher than estimated

By: |
November 16, 2020 3:15 AM

FY21/22e EPS up 17/10% on growth outlook, margin guidance; TP raised to Rs 2757

Excluding anti-malarial drugs, domestic business was up 6% y-o-y, as Pain & Analgesics, which accounts for more than half the domestic revenue, was up 10% y-o-y.Excluding anti-malarial drugs, domestic business was up 6% y-o-y, as Pain & Analgesics, which accounts for more than half the domestic revenue, was up 10% y-o-y.

Ipca reported a 7% miss in revenue, driven by a dip in India anti-malarial season and UK payment issues. Adjusting for these one-off effects, revenue was in line. At 25%, margins came in better than expected, driven by all-round cost savings. Management has guided for improvement in India business growth for H2 and 25-27% margins for remaining FY21/22/23 on the back of sustainable cost savings. We upgrade FY21/22e EPS by 17/10%. Buy India business recovers, (ex-malarial) sales up 6% y-o-y: Total domestic revenue was flat y-o-y, largely due to base erosion in anti-malarial drugs that registered sales of Rs 560 m vs Rs 950 m last year.

Excluding anti-malarial drugs, domestic business was up 6% y-o-y, as Pain & Analgesics, which accounts for more than half the domestic revenue, was up 10% y-o-y. Management guided for 10-11% domestic revenue growth for the next two quarters and we factor this in our model.

API strength to continue: Ipca’s export API business revenue has grown by 43% over H1FY21/H2FY20. Q1FY21 reflected HCQS sales but it has normalised in Q2. The company has guided to 18-20% growth in API business for rest of FY21.

Better visibility on margins, in line with peers: Several pharma companies have guided that margin improvement as seen in H1FY21 is sustainable. In case of Ipca, this is driven by operating leverage as well as reduced marketing spends.

We retain Buy; value company at 29.8x FY22e EPS with a PT of Rs 2,757.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Reliance leads 10 most valued firms to lose Rs 91,699 cr in m-cap
2FPIs net buyers for 2nd consecutive month in Nov, invest record sum of Rs 60,358 cr in equities
3Companies raise Rs 25,000 cr via IPOs in 2020 so far; next year expected to be equally strong