Accumulate Ipca Laboratories Ltd For Target Rs. 1,525 - Prabhudas Liladhar Capital Ltd
Muted FY26 revenue growth guidance
Quick Pointers:
? Guided for 8-10% revenue growth in FY26 with OPM improvement of 100bps
? Impairment charges in Q4FY25 stood at Rs 2.1bn.
Ipca Labs (IPCA) reported EBITDA of Rs4.1bn (up 35% YoY), was in line with our estimates. However, mgmt. FY26 guidance of 8-10% revenue growth was below our expectations (12-13%). Resultant, our FY26E and FY27E EPS stands reduced by 4-8%. API and generic business growth were muted in FY25; recovery will be gradual. Domestic formulation business, which now contributes 40% of revenues and ~55% of EBITDA, continued to outperform and grow at healthy levels. Turnaround in Unichem remains on track with margins improving from 6% at time of acquisition to 12.5% in FY25. At CMP, the stock is trading at 17x EV/EBITDA and 29x PE on FY27E adjusted for Unichem stake. We maintain our ACCUMULATE with revised TP of Rs1,525/share; valuing at 18x EV/EBITDA.
Domestic formulation and institutional segment aided growth: IPCA’s revenues came in at Rs 22.5bn, up 10.5% YoY in line with our est. Domestic formulations remained healthy at 11% YoY (we est 12%) to Rs 7.6bn. Export formulation was up 11% YoY at Rs 5.2bn in line with our estimate. Branded business increased by 3% YoY while generics growth was at 7% YoY. Institutional businesses witnessed strong growth of 33% YoY. API revenues showed muted growth up 2% YoY to Rs 3.4bn. Export API was down 3% YoY whereas domestic API increased 18% YoY. Revenues from subsidiaries, including Unichem came at Rs6.1bn
In line EBITDA, PAT beat aided by lower tax: Consolidated gross margins improved 220bps YoY to 68.5%. There was forex gain to the tune of Rs 190mn booked under other expenses. Adj for forex; other expenses were up 9% YoY. Staff cost was up 7% YoY. EBITDA adj for forex gain came in at Rs 4.1bn; in line with our est. OPM came in at 18.2%, up 320bps YoY, down 170bps QoQ. Unichem margins came at 14.3% (down 170bps QoQ). Adj for Unichem; EBITDA growth was at 17% YoY. OPM at 19.6%. Tax came in lower at 18%. Resultant PAT came in at Rs2.73bn; up 39% YoY
Key Concall takeaways: Domestic: Market share improved to 2.1% (from 1.8% in FY24). Contribution from metro cities increased from 32.6% in FY22 to 37.6% in FY25. Chronic segment grew 17.9% (vs 9.8% industry growth). Current mix: 66% acute, 34% chronic. MR strength at 7000. Plans to add 400-500 in FY26. PCPM at 0.4mn per month, expects 8% gradual increase YoY. Unichem: EBITDA margins improved to 12.6% (4.9% FY24). API integration with IPCA in process (expects benefits from FY26). Additional product filings (3-4) in FY26. No immediate need for new capex. Guided for ~10% growth with further margin expansion. US: Total sales was to the tune of Rs650mn of which Rs230mn been sold through Unichem. Guided for Rs1bn revenues in FY26.. Shipped 3-4 products which should go to 6- 7 products in FY26. Export formulations: South Africa biz de grew by 65% YoY due to loss of tender business while Canada business was flat YoY in FY25. CIS growth was moderate at 2% YoY due to currency fluctuations. Australia, New Zealand markets faced de growth due to inventory rationalization. Guided for 10% growth in generic business including international business for FY26. Others: No major impact from US tariffs yet. Stabilisation expected in API prices with expected volume and price growth in FY26. R&D spend likely to increase from 3.25% to 4%. 20+ products in development for global markets. FY26 capex guidance at Rs 4bn. Capex is dedicated largely for 4 projects; formulation unit at Devas, Injectable facility in North Carolina, API/intermediate facility at Nagpur and Monoclonal antibody plant at Pithampur. FY26 guidance- Overall consolidated revenue growth of 8-10% with 100-120 bps OPM expansion.
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