IGI Logo

IPCA consolidated Unichem w.e.f. Aug’23, which reflected in Dec-Q’s 33% revenue growth and lower margin of 16%. While the management guides for INR 20bn revenue and INR 3bn EBITDA by FY26, we believe this can be achieved ahead of expectations. The key highlight during the quarter was 29% miss on branded formulations due to deferment of shipments to CIS, issues in Myanmar and lower demand. Generic formulations grew 33%YoY and we expect this trajectory to continue. Domestic business’ 11% growth will place IPCA at the lower end of 12-14% full year guidance. IPCA’s US business is at an inflection point – regulatory issues at its facilities have been resolved, supplies are expected to start w.e.f. 1Q25 and Unichem is outperforming street expectations. Unichem's integration remains management’s top priority. US turnaround, strong domestic franchise and exports growth builds a compelling case for our BUY thesis. We assign a multiple of 26x (+1 SD above 5Y average PE) to derive a TP of INR 1280.

* Base business weak; Generics outperforms: Domestic formulations reported a revenue of INR 7.8bn (3% miss). IPCA’s chronic and acute portfolio growth was ahead of the market. Notably, Zerodol growth has slowed down to 8-9%. NLEM price hikes did not materially benefit IPCA. The management is likely to meet their lower end of guidance of 12-14% growth in FY24 as MR productivity continues to improve. Exports growth was flat YoY (10% miss) due to significant miss on branded formulations partly offset by healthy performance in Generic (+33% YoY; 7% beat) and Institutional (-8% YoY; 15% beat) businesses. The management does not expect any loss in South Africa business now and expects UK business to sustain momentum with the new launches lined up next year. The only risk to this growth is the on-going geo-political tensions. Branded formulations were weak due to deferment in shipments to CIS and issue in licenses for export to Myanmar. API segment also declined -13%YoY due to decline in volumes although sartan prices have stabilised now. The company expects 2% margin expansion next year driven by better mix, operating leverage Unichem integration.

* Unichem beats street expectations: The management is guiding for INR 20bn top-line with INR 3bn EBITDA in FY26 but is likely to achieve this ahead of expectations, in our view. The management, last quarter, detailed a few initiatives: (1) API process optimisation which could lead to 30-40% cost reduction; (2) Procurement efficiencies due to bulk purchase as in IPCA does; (3) Reducing utility cost by 12-14cr; (4) Reducing logistic costs due to decline in % of air shipments; (5) Reduction in losses in UK and Ireland; (6) Market extension of products – of the 17 US ANDAs identified, 5 products can also be filed in Europe, Australia, New Zealand, Canada and 12 products where biostudy needs to be repeated can also be filed in these geographies. Post clearance of US facilities, IPCA aims to resume supplies to the US in 1Q25. The company plans to launch 8-9 products next fiscal. 10 products can be started quickly post revalidation and also plans to launch 9 ANDAs next year (incl. 3 Para IVs). The distribution of products in the US will be done via Unichem franchise (the company is integrating Bayshore with Unichem).

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361