Stable topline, strong margin performance...
Q2 revenues grew 6% YoY to | 1361 crore (I-direct estimate: | 1447 crore) mainly due to 21.2% YoY growth in API segment to | 381 crore partly offset by 1.4% YoY de-growth in domestic segment to | 536 crore. Export formulation revenues grew 6.9% YoY to | 364 crore. EBITDA margins improved 586 bps YoY to 26.5% (I-direct estimate: 28.0%) due to higher gross margins, lower other expenditure. Hence, EBITDA grew 36.2% YoY to | 360 crore (I-direct estimate: | 405 crore). PAT grew 38.3% YoY to | 267 crore (I-direct estimate: | 300 crore) in line with operational performance.
Export formulations main catalyst for growth
Growth in export formulations (28% of FY20 revenues) was on the back of growth in both international generics and international branded formulations. The international anti-malarial institutional business has also contributed substantially to overall exports growth. US traction will take more time than earlier estimated due to USFDA import alerts for the Ratlam facility that is the only API source for Silvassa and Pithampur formulations plants along with Silvassa and Pithampur (Indore) plants that are specifically earmarked for the US business, besides third party sales. However, sustained traction from branded and generics exports sales with a revival in EU, is expected to mitigate the US void. We expect export formulations to grow at ~15% CAGR in FY20-23E to | 1848 crore, driven by generic formulation exports and recovery in the tender and branded exports.
Growth in ex-anti-malarials to counter antimalarial volatility
Domestic formulations comprise 44% of FY20 revenues. The domestic performance has been volatile at times due to presence of anti-malarials in the portfolio. However, with incremental growth in other therapies, especially non-communicable diseases like pain management, cardiodiabetology, etc, the overall portfolio is poised for steady growth. We expect Indian formulations to grow at ~11% FY20-23E CAGR to | 2597 crore.
Valuation & Outlook
Q2 results were below I-direct estimates on all fronts due to lower-thanexpected sales in domestic formulations. Notwithstanding quarterly gyrations in domestic formulations, the company continues to thrive on the exports front, both in formulations and APIs. Though there are fluctuations in the institutional business, the management remains upbeat on prospects. Going ahead, with firm growth tempo in domestic formulations, good prospects both for API exports, formulation exports, we expect further improvement in financial parameters. Ipca will continue to remain a compelling bet on the back of well-rounded growth prospects for FY20–23Esales, EBITDA, PAT CAGR of 12%, 22%, 29%, respectively. We arrive at our target price of | 2665 (26x FY23E EPS of | 102.5).
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