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Q3 FY21 call highlights

* Robust margin guidance of 25‐26% implies OPM crosses previous all time high, a result of improved profitability and cost savings  

* Solid revenue visibility in domestic market with leadership brand in pain management to potentially double in 5‐6 years

* Cost normalisation built in FY22 but sustainable growth and robust margins of 31‐ 32% on incremental revenues give comfort unavailable at US focused peers  

* IPCA remains a top BUY based on unchanged target PE of 28x, at a slight premium to historical top end of range on a well oiled domestic business, lack of volatility in export markets and underrated API business which has scope for further scalability

Guidance

* Confident of maintaining margins at 25‐26%

* Capex to be around Rs 3‐3.5 bn for FY22.

* India business to grow by 12‐13% in FY22; There will some cost saved due to lower medical conferences.

* Branded business ‐ see 10% growth in FY21. Confident of good growth in 4Q in this segment.

Other highlights

* Domestic business ‐ Pain and & Cardio business has shown good growth in the quarter. CMS, derma, ophthalmology has turned positive growth. Anti‐malaria, cold and cough segment has continued to see de‐growth

* Margins ‐ Higher material and freight has impacted the margins. temporary phase as certain intermediaries were not available from China. The company expect things to normalize from 1Q FY22.

* Sartans ‐ price reduction due to significant reduction in raw material prices and the company has passed on the benefit; currently prices stable

* Branded promotion business‐ CIS (Russia) was impacted due to COVID‐19 due to lower offtake, in the current quarter the company has lowered the shipment due to COVID‐19 and expect 4QFY21 to be normal.

* Capex‐  Setting up API plant at Ratlam; commissioning will start by March and commercial ops by Q2 FY22; will add 10% capacity

* By 2Q FY22, Devas plant should be ready for commissioning and by 4Q FY22 should be ready operational; to add 25% of capacity

* Aurangabad plant ‐ delay due to covid‐19 and the plant is commissioned now; company will look to set up another plant in FY22

* API ‐ Largely it is helped by Covid‐19 in current year

* Have Rs 3.6 bn MAT credit and will use Rs1 bn in FY21 and Rs1.6 bn in FY22E of the remaining MAT credit and balance will used in FY23E.

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