IGI Logo

API segment to see slowdown in FY24

* IPCA delivered lower-than-expected 1QFY24 financial performance as growth moderated in the international generics, API and institutional antimalaria segments. Domestic formulation (DF) continued to perform well owing to healthy traction in key therapies like pain, cardiovascular, CNS and dermatology.

* We cut our FY24 earnings estimate by 4% factoring in near-term weakness in API business and a gradual recovery in anti-malaria segment. We value IPCA at 22x 12M forward earnings to arrive at a TP of INR840.

* IPCA remains well placed to sustain industry-beating growth in the DF segment. We await clarity on recent USFDA inspections at its formulation and API sites. Moreover, Unichem’s site was last inspected in CY20. Thus the USFDA regulatory risk remains high on IPCA/Unichem combined basis. We retain our Neutral rating on the stock as we believe the current valuation richly factors in earnings upside.

Geography-mix benefits offset by higher opex YoY

* IPCA’s 1QFY24 sales were flat YoY at INR16b (our est: INR17b).

* DF sales grew 14% YoY to INR8b (49% of sales). Exports (generics formulation) increased by 11% YoY to INR2.4b (15% of sales). Exports (branded formulation) rose 23% YoY to INR1.1b (7% of sales). Exports (institutional sales) declined 50% YoY to INR484m (3% of sales). API sales declined 21% YoY to INR3b (19% of sales). Revenue from subsidiaries fell 15% YoY to INR1b (6% of sales).

* Gross margin (GM) expanded 400bp YoY to 67.5%, due to a superior product mix and lower RM costs.

* However, EBITDA margin expanded at a lower rate of 60bp YoY to 18.5% (our est: 18.8%), due to higher operational costs (employee/other expenses up 220bp/120bp YoY as % of sales).

* EBITDA grew 4% YoY to INR3b (our est: INR3.2b).

* Adj. PAT for IPCA was flat YoY at INR1.5b (our estimate: INR1.7b), due to higher interest outgo and tax rate, slightly offset by higher other income.

Highlights from the management commentary

* IPCA expects FY24 EBITDA margins to be 19-19.5% (Ex-Unichem), aided by a good performance in DF business, better MR productivity and cost control.

* IPCA segmental guidance for FY24:

* DF to grow by 12-14% YoY

* Generic business to grow by 7-8% YoY

* Institutional segment to decline by 15% YoY due to lower offtake of Artmether-lumefantrine and other products.

* API to decline by 10-12% YoY due to lower pricing for KSM and Sartans (USD6-7 per unit from USD18-20) and demand decline in anti-malarial segment.

* Overall GM is likely to improve in FY24 as IPCA continues to focus on formulations. API margins are lower than formulations’ margins.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer