Buy IPCA Labs Ltd For Target Rs. 2,850 - Yes Securities
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Our view
Q1 FY22 might again be a high water mark in domestic revenue growth as base comparison turns increasingly adverse in subsequent quarters. Albeit, we expect continued strong traction from pain business led by Zerodol and build in an unchanged 16% domestic growth in FY22. Branded and generics business would in contrast as the latter comes off HCQS fueled base of last year. API capex on Dewas and Ratlam for captive formulations would boost gross margin as company targets inhouse manufacture of APIs with maximum current contribution. We marginally tweak estimates for FY23 and retain BUY based on 28x FY23 EPS for revised TP Rs2,850 (earlier Rs2,750). Reckon the stability of domestic business as opposed to emergent fears over rising price erosion in US (from recent peer results) coupled with scope for margin surprise should help drive rerating.
Result Highlights
* India business driven by very weak base of last year; antimalarial, cough & cold and anti‐biotics led the revenue growth
* Gross margin declined on RM cost hit as also a function of revenue mix – higher sales of low margin products like antimalarial and cough & cold
* Reiterates domestic growth guidance of 16‐18% with upside likely to 25% margin looking at Q2 trend
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