Ipca Laboratories :Buy, 21 % Upside
Call & Research Report by Motilal Oswal Research
Report Date: 11 April 2021
CMP Rs. 2085 Target price Rs. 2480
From our interaction with the management, we believe Ipca Laboratories (IPCA) has enough levers to outperform the market in Domestic Formulations (DF) and Branded Generics exports, with good visibility in the Institutional business and continued momentum in the API segment.
Superior execution, market share gains to drive growth in DF
While doctors have resumed their clinics, partly on account of having received their vaccinations, patient footfall is yet to return to normal levels. Particularly, patient footfall remains low in the case of Pediatrics.
IPCA has witnessed sustained growth momentum in the Pain segment. It has posted market share gains, on account of the pandemic, in products wherein smaller companies have been unable to meet supply requirements. Moreover, higher prescriptions for established brands such as Zerodol have enhanced growth prospects for IPCA in this segment.
IPCA has outperformed in the Anti-Neoplastics, Central Nervous System (CNS), Dermatology, and Urology segments as well.
IPCA has been a small player in Anti-Infective therapy – growth prospects have been impacted even further due to COVID. IPCA is gradually reviving sales in this therapy via new launches and increased traction in existing products.
Overall, we expect a 14.5% sales CAGR in DF to INR27b (37% of sales) over
FY21–23. Capacity expansion, backward integration to improve API prospects
Led by an investment of INR4b toward capacity enhancement as well as the ongoing backward integration, we believe IPCA’s API business (25% of sales) would sustain the growth momentum over the next 3–5 years.
Branded export business to see growth revival
IPCA has reported sales of ~INR3.8b (7% of sales) in the Branded export
segment over the past 12M (down 5% YoY), largely due to the COVID-led
disruption. However, with a reduction in daily new cases in the Middle East / West Africa, the segment is expected to see growth recovery.
Strong order book provides visibility in Institutional business
Product diversification, customer diversification, and a healthy order-book have offered better visibility in the Institutional Anti-Malarial business over the next 12–24M. We expect a sales CAGR of 8% to INR4.3b (7.5% of sales) over FY21–23.
Valuation and view
Adjusted for one-time business in FY21, we expect IPCA to deliver a 16%
earnings CAGR over FY21–23 on a) better-than-industry growth in DF, b)
recovery in the Branded business, c) increased prospects in the UK business, d) increased business opportunity in the Institutional segment, and e) a capacity enhancement exercise in the API segment.
We value IPCA on a 24x 12M forward earnings basis to arrive at Target Price of INR2,480. Reiterate Buy
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