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Long-run growth prospects intact

We interacted with Joint MD of Ipca Laboratories (Ipca), Mr. Ajit Jain. Key highlights: i) Confident of clocking market-beating growth in India as other therapies complement Zerodol. Getting aggressive in cardiac, which can become 25% (from 18%) of the overall pie. ii) Rebuilding UK business through a direct approach, which should improve margin over the next 18 months. iii) Dewas and Ratlam API plants to add 25% to existing capacity. iv) Input cost pressures expected to stabilise in a couple of quarters. v) Targeting API companies with newer molecules, possibly USFDA approved, which can be forward-integrated.

Barring near-term pressures, Ipca is poised to turn in organic low-teens growth as its revenue trajectory is intact. ‘BUY’ with a TP of INR2,530.

Underrated R&D strength to drive domestic outperformance

Ipca has grown at almost 1.5x industry growth over the last five years. Its success is attributable to its R&D, where it has successfully demonstrated aceclofenac (Zerodol) superiority to other NSAIDs and low0dose chlorthalidone (CTD) efficacy that has enabled it to shift Rx to its own brands. Ipca is confident of not only sustaining its pain franchise– Zerodol peak sales >INR10bn – but also grow cardiac and other divisions. The company is getting aggressive to expand cardiac therapy to an aspirational 25% of revenue (from ~17-18%) and plans to add 350–400 salesforce.

EU to achieve full potential in next 12-18 months

The UK business is ~60% down from its peak, but Ipca is confident of recovering a large part in the next 18 months as it will have a basket of ~25 products (up from 9) the next 18 months on its own label. The EU situation, which is currently facing excess inventory, should start easing over the next couple of quarters.

Selectively targeted acquisitions should keep balance sheet lean

Ipca’s acquisitions are either to fill gaps in existing businesses (Lyka for injectable) or part of long-term plans (Pisgah: low-volume/high-value CRAMS). Investments in subsidiaries/associates have been

Outlook and valuation:

Growth levers intact; maintain ‘BUY’ The unprecedented input cost escalation should start easing over the next six months. Ipca is confident of maintaining its volume in sartans as it has developed a new process and expects orders in the rest of the API business to also pick up. Nearterm pressures should not obscure its market-beating growth in India, its vertically integrated business model, API potential beyond FY22 due to capacity addition and an enviable cost optimisation track record.

Ipca has been a beneficiary of several one-offs such as HCQs during covid and sartan opportunities in API. Hence, while FY22 growth looks challenging, FY23 should see normal growth resuming. We stay optimistic on Ipca’s long-term prospects. Retain ‘BUY/SO’ with a TP of INR2,530.

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