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Strong execution drives a broad-based earnings beat

* Ipca Lab (IPCA) delivered a strong financial performance with 8%, 25%, and 34% beat on revenue, EBITDA and PAT, respectively in 1Q. Exports and API sales along with improved operating leverage led better-than-expected performance for the quarter.

* Exports continued to grow at strong pace for the fourth consecutive quarter, led by a robust show in export generics and an increased institutional business. Branded exports sustained mid-teens YoY growth in 1QFY27.

* Demand tailwinds and superior execution led to sustained outperformance vs. the industry in the domestic formulation (DF) segment for 1QFY27.

* After two quarters of weak performance, the API segment witnessed a strong revival in growth during the quarter.

* We raise our earnings estimates by 14%/4% for FY26/FY27, factoring in:

1) an improved outlook in export formulations as well as the API segment

2) better operating leverage. We value IPCA at 30x 12M forward earnings to arrive at our TP of INR2,060.

* We expect a 12%/19%/18% CAGR in revenue/EBITDA/PAT to reach INR121b/ INR28b/INR16.2b by FY28. After three years of robust earnings growth over FY24-26, we expect the momentum to sustain over FY26-28, led by industry-beating growth in DF, increased offtake in exports, and favorable currency movements. Reiterate BUY.

Healthy growth across key business segments

* Formulation sales grew 19% YoY to INR16.9b (61% of sales)

* Export formulation sales grew 34% YoY to INR6.0b (22% of total sales). Domestic formulation sales grew 13% YoY to INR10.8b (39% of total sales).

* Export of generics formulations grew 27% YoY to INR3.4b (56% of export sales). Export of branded formulations grew 16% YoY to INR1.4b (24% of export sales). Export of institutional sales grew 107% YoY to INR1.2b (20% of export sales)

* API sales grew 30% at INR4.2b (15% of sales)

* Export API sales grew 33% YoY to INR3.3b (78% of API sales). Domestic API sales grew 20% YoY to INR914m (22% of API sales)

* Revenue from subsidiaries grew 19% YoY to INR6.7b (24% of sales).

Highlights from the management commentary

* Management upgraded its FY27 overall revenue growth guidance to 14–16% (vs. 12–13%), driven by stronger-than-expected performance in the Indian generics and API businesses.

* Management raised FY27 consolidated EBITDA margin guidance to ~23% (vs. ~22%).

* Management reiterated FY27 domestic business growth guidance of 12–13%.

* Management maintained Unichem's FY27 guidance of 10% revenue growth and 13% EBITDA margin, despite strong 1Q

* Management expects the US business to deliver sustainable growth of ~15–17% over the next few years, supported by the new launches and the regaining of market share in existing products.

* Management expects 7–8 US product launches and 4–5 ANDA filings annually, with these launches evenly split between IPCA and Unichem.

Valuation and view

* We raise our earnings estimates by 14%/4% for FY26/FY27, factoring in:

1) an improved outlook in export formulations as well as the API segment

2) better operating leverage. We value IPCA at 30x 12M forward earnings to arrive at our TP of INR2,060.

* We expect a 12%/19%/18% CAGR in revenue/EBITDA/PAT to reach INR121b/ INR28b/INR16.2b by FY28. After three years of robust earnings growth over FY24-26, we expect the momentum to sustain over FY26-28, led by industrybeating growth in DF, increased offtake in exports, and favorable currency movements. Reiterate BUY.

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