Buy Ipca Laboratories Ltd For Target Rs.2560 - ICICI Direct
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Strong performance despite GPM pressure…
About the stock: Ipca is a fully integrated pharma company manufacturing over 350 formulations (73% of revenues) and 80 APIs (27% of revenues) with exports contributing 48% of revenues.
* It is a leading supplier of APIs like atenolol (antihypertensive), chloroquine and artemisinin derivatives (antimalarial), furosemide (diuretic), and pyrantel salts (anthelmintic)
* Major therapeutic segments include pain management cardiovascular and anti-diabetics, anti-malarials which together account for 75% of the revenues.
Q1FY22 Results: Ipca posted decent Q1FY22 results despite very high base
* Sales were up 2% YoY, 40.5% QoQ to | 1565.8 crore
* EBITDA was | 416 crore, down 29%YoY (up 82%QoQ) with margins at 26%
* Consequent PAT was at | 306.7 crore (down 31.3% YoY, up 90% QoQ)
What should investors do?
Ipca’s share price has grown by ~4.1x over the past five years (from ~| 488 in June 2016 to ~| 2026 levels in June 2021).
* We change our view from HOLD to BUY on this stock due to good traction in domestic formulations and growth in the medium term
Target Price and Valuation: We value Ipca at | 2560 i.e. 25x P/E on FY23E EPS.
Key triggers for future price performance:
* Incremental growth in other therapies (excluding malaria), especially noncommunicable diseases like pain management, cardio-diabetology, etc, the overall portfolio is poised for steady growth
* US traction will take longer due to USFDA import alerts for the Ratlam facility that is the only API source for Silvassa and Pithampur formulations
* Sustained traction from branded and generics exports sales with a revival in EU is likely to mitigate the US void
Alternate Stock Idea: Apart from Ipca, in our healthcare coverage we like Ajanta.
* It is mainly into domestic as well as exports formulations with focus on launching maximum number of first time launches
* BUY with target price of | 2695
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