Neutral Ipca Laboratories Ltd For Target Rs.760 - Motilal Oswal Financial Services
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We attended the analyst/investor call hosted by IPCA Laboratories (IPCA) regarding the Unichem Lab (Unichem) acquisition.
The acquisition would enable IPCA’s re-entry into the US generics market and aid synergy through cross-selling the portfolio in the export market. ? However, we believe that increased competition in the oral solids US generics market and no USFDA inspections at Unichem sites since Feb’20 put the outlook for the US generics business at risk. ? We cut our FY24/FY25 EPS estimates by 11.7%/5% to factor in the Unichem acquisition and a subsequent reduction in other income. ? We also reduce the PE multiple to 21x (from 24x) due to the utilization of capital toward the high-gestation/low-return generics business and expensive valuations. Accordingly, we arrive at a TP of INR760. We downgrade IPCA to Neutral on limited upside from current levels.
Key highlights
* IPCA indicated a revenue target of INR18b and EBITDA of INR3b (16.6% margin) over the next two years from the Unichem acquisition.
* IPCA would work on new launches (~10 ANDAs to be launched over next 12- 15 months), improving traction in existing products, enhancing operational efficiencies and gaining synergy benefits to improve the sales/profitability outlook in the next two years. Lower R&D spending would also aid margins.
* The peak sales from the current Unichem gross block would be INR27-28b.
* A shift from the GST rebate process to the GST refund could unlock INR2.5b in Unichem. Further, it has a land parcel at Jogeshwari, Mumbai, which can also be monetized.
* The transaction is expected to be completed in 4-6 months. IPCA does not plan to increase its stake in Unichem after the open offer.
* Unichem has 76 ANDA filings, with 54 approvals and ~44 products in the market. Top 10 products account for about 70-75% of current business.
* Unichem has filed 78 DMFs till date.
* The current capacity utilization of Unichem’s Goa II site is about 20-30%. IPCA’s Pithampur/Pipariya sites are at 30% capacity utilization.
* The last USFDA inspection at Unichem’s sites was conducted in Feb’20.
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