Buy Ipca Laboratories Ltd For Target Rs.1,800 by Prabhudas Liladhar Capital Ltd
Quick Pointers
* Guidance of 12-13% revenue growth in FY27E.
* Unichem margins to improve from ~8% to ~12% in FY27E.
IPCA reported strong EBITDA of INR 4.9bn (up 19.6% YoY), 7% above our estimates. Company has guided strong revenue growth of 12-13% and 150 bps margin expansion in FY27. Our FY27 and FY28E EPS stand increased by 2-3% which factors in 11% revenue growth in FY27. Domestic formulation and branded generic business, which now contributes 46% of revenues and ~70% of EBITDA, continued to outperform and grow at healthy levels. We believe
1) Recovery in API segment
2) Higher margins ex Unichem
3) Steady growth in domestic formulation are the key growth drivers. At CMP, the stock is trading at 14.5x EV/EBITDA and 23x PE on FY28E adjusted for Unichem stake. We maintain our “Buy” rating on stock with TP of INR 1,800/share; valuing at 28x P/E on FY28E.
Healthy revenue growth YoY: IPCA’s revenues came in at INR 23.9bn, up 6.3% YoY. We est INR 23.2bn. Ex Unichem, revenues grew by 9% YoY. Domestic formulations growth was 12% YoY. Export formulation was up 16% YoY at INR 6.1bn above our est. Branded business was up by 14% YoY while generic business was up 38% YoY. Institutional business was down 33% YoY. API sales remained flat YoY at INR 3.4bn. Export API was down 4% YoY whereas domestic API was up 15% YoY. Revenues from subsidiaries was at INR 5.7bn.
Higher EBITDA, GMs improved ex Unichem: Consolidated gross margins improved 257bps YoY but declined 146bps QoQ to 71%. There was forex loss to the tune of INR 63mn booked under other expenses. Adj for forex; other expenses were up 7% YoY. Staff cost was up 6% YoY. EBITDA adj for forex gain came in at INR 4.9bn, up 19.6% YoY; vs our est of INR 4.6bn. OPM came in at 20.5%, up 230bps YoY. Unichem margins at 8.3% (down 600bps YoY and flat QoQ). Adj for Unichem; EBITDA growth was at 36% YoY; GMs of 77% and 24% OPM. PAT came at INR 2.9bn. Adj EPS INR 11.2/share.
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