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* Formulation business:

 The total formulation business, constituting 57% of total sales, recorded an 11.8% YoY growth, reaching INR 11,635mn. The domestic formulation business exhibited a 13.5% YoY growth at INR 6,898mn, ranking the company as the 16th pharma company in India as per IQVIA, beaten on both chronic and acute therapies. As per the MAT March’24, the market share has improved to 2.04% from 1.88% in March’23. Exports formulation grew by 9.5% YoY, reaching INR 4,737mn. In FY25, the domestic formulation business is expected to continue to outperform the industry growth and deliver more than 12% growth.

*  API business: 

API, constituting 16.4% of total sales, experienced a decline of 3.6% YoY, to INR 3,343mn. The API business was impacted by a single product, Losartan, due to issue in the sales stability and raw material price. The company expect around 7-8% growth in the API business in FY25.

*  Unichem Business: 

The integration is benefitting on the procurement side because of IPCA’s high volume business, duplication work are also getting avoided, and operational efficiencies on the operational side are also kicking in, and both the companies are working together to reduce the API cost but the benefit will take some time due to regulatory approvals. Unichem’s products will be expanded to new geographies like Europe, Australia, New Zealand, Canada, and South Africa. The Unichem margin has reached at an INR 100cr in FY24 and expected to reach INR 225cr in FY25. The company will launch 5-6 new formulation products in the US market.

*  Margin Performance: 

The gross profit witnessed a substantial YoY increase of 537bps YoY to 66.3%, driven by stability in the procurement cost. The EBITDA margin saw a growth of 386bps YoY to 15.8%. The management expects that the EBITDA margin will improve by 100-150bps for next 2-3 years, and will achieve 24-25% margin over the next 6-7 years.

*  Outlook & Valuation: 

The outlook for IPCA Labs considers several factors, including 14% top-line growth which will majorly be driven by domestic market, continue to outperform the industry growth on both chronic and acute therapies, margin expansion by 100-150bps every year over 2-3 years, benefitting from the Unichem business integration, and new launches in the US market. The valuation approach involves assessing the company based on the FY26E EPS, resulting in a target price of INR 1,410, valuing it at a multiple of 30x, with BUY rating on the stock