Buy Ipca Laboratories Ltd for the Target Rs 1,950 by Emkay Global Financial Services Ltd
Ipca posted a broad-based sales beat across markets (ex-branded exports) in 1QFY27, with the strong sales beat translating into a 20%/24% EBITDA beat vs our/street estimates. Given the strong 1Q performance, the management has raised its FY27 consolidated topline growth and margin guidance to 14- 16% (vs 12-13% earlier) and 23% (vs 22% earlier), respectively. In our view, Ipca’s 1QFY27 performance settles key ongoing investor debates around the name:
1) Unichem potentially achieving margins in line with other US generic businesses (mid-teens) in the medium term (for context, the ~11% margin posted by Unichem in 1Q was what we were building in for FY28)
2) room for Ipca’s standalone margins to expand further (26.3% ex-forex gain in 1QFY27 vs 25.2% in FY26; path to 30% standalone margin in the medium term, per the management)
3) scope for a meaningful uptick in Ipca’s own US portfolio, given concerns that the opportunity size for some of its products could have shrunk over the years (the robust 1Q US growth for Unichem being primarily driven by Ipca’s own portfolio comprehensively addresses this concern, in our view). Note that Ipca’s 13% domestic formulations growth in 1Q (full-year guidance also at 12-13%) should be seen in the context of its double-digit domestic growth not being contingent on a recovery in the broader market (structural domestic volume growth well ahead of peers’ on 4-year CAGR basis). We raise FY27E/28E EPS by 5%/3% (still below Ipca’s revised guidance). We roll forward to Sep-28E EPS and assign a higher target multiple to Unichem. We retain BUY; TP now stands revised up by 8.3% to Rs1,950.
Strong generics + API performance; domestic sales marginally ahead
Domestic formulations growth (13% yoy) was marginally ahead, driven by double-digit growth across key therapies (pain, cardiac, anti-diabetic, CNS, derma, and urology). Branded sales (16% yoy) missed our estimates while generics growth (27% yoy) was meaningfully ahead of expectations, aided by growth across markets (EU, US, and UK; new launch-driven). The sharp increase in generic institutional sales in 1Q was driven by shipments worth ~Rs400mn being delayed from Mar-to-Apr ’26. The beat in consolidated EBITDA margin (24%; ~300bps ahead) was primarily driven by operating leverage gains
KTAs from the earnings call
1) Retains guidance of 10% topline growth and 13% EBITDA margin for Unichem in FY27.
2) Unichem’s US business posted 27% growth in 1Q, with Unichem’s own US portfolio growing 9%. Expects 7-8 new launches per year in the US (Ipca + Unichem) and 15- 17% US growth in the medium term.
3) Expects full-year generic institutional sales to track the Rs2.6-3bn range.
4) Despite fluctuations in input prices and escalating logistics costs, expects sales growth to outpace the increase in raw material costs going forward; margin guidance bakes in the increase in logistics costs. (Additional KTAs on next page)
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
