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In-line performance; valuation expensive

IPCA Laboratories (IPCA IN) reported in -line Q2FY27 with revenue, EBITDA and PAT coming within 1 -3% of our estimates. Revenue grew 14% YoY and EBITDA margin was up 183bp s YoY , both in line with the guidance. Domestic formulations grew ~14% YoY, led by a 16% rise in the pain portfolio, while exports (formulations) grew a strong 32% YoY. Management maintained its FY27 guidance of 14 -16% consolidated growth and 22 -23% EBITDA margin. Unichem ’s EBITDA margin (11.3%) was hit by higher freight and air -shipment costs. We lower our FY27E -29E core EPS by 1 -2%. We maintain Reduce and lower our TP to INR 1,981.

India business – Pain franchise drives growth:

Domestic formulations grew ~14% YoY to INR 11.6bn. The pain segment grew 16% YoY (INR 6.3bn vs . INR 5.4bn), and Zerodol , as an umbrella brand, has crossed INR 15bn in sales (IQVIA). Zerodol -SP moved up to the eighth rank from 11th a year ago. Per IQVIA (MAT Sep -26), the chronic segment grew ~20% vs. IPM growth of ~17%, while the acute segment grew ~11%, in line with the market, as anti -malarial declined and anti -bacterial and cough & cold were muted. Market share improved to 2.11% (rank 16). Management expects the pain/arthritis portfolio to sustain 14 -15% growth for the next three to four years, with volume growth of 8 -9% and price growth of 4 -4.5%

Exports – Generics and institutional strong:

Standalone export formulations grew 32% YoY to INR 6.5bn. Branded business in RoW markets grew 19% to INR 1.7bn, and generics (excluding tender) 36% to INR 3.6bn, with Canada (+45%), South Africa (+46%), the US (+31%), ANZ (+24%) and Europe (+23%) all doi ng well. Institutional generics grew ~45% YoY, aided by catch -up of shipments deferred from FY26. Management now expects FY27 institutional sales of INR 3.25 -3.4bn vs. its earlier guidance of INR 3bn but does not expect this growth to sustain next year. API grew 6% YoY. The UK business has turned profitable as prices recover. Pisgah is the only loss -making subsidiary, with improvement expected only from FY28.

Unichem – Freight costs hurt margin:

Unichem's EBITDA margin was 11.3%, as freight costs rose ~INR 300mn QoQ and the share of air shipments increased to ~25% from 5 -6%. Brazil turned profitable after two loss -making quarters. Unichem's US sales were USD 38.5mn, while IPCA's own US portfolio (booked in Unichem) grew ~74% YoY to USD 5.8mn. Management indicated that Unichem margins could remain at 11 -13% if freight and energy costs stay elevated, vs. its earlier guidance of ~13%. Gross margin of ~58% may vary by 1 -2% given volat ile input costs.

Reduce maintained; TP lowered to INR 1,981: We lower our FY27E -29E core EPS by 1 -2%. IPCA currently trades at 32.4x FY27E and 28.2x FY28E core P/E. We lower our TP to INR 1,981, which is 25.2x FY29E core P/E plus cash per share. We maintain Reduce. Faster -than - expected margin recovery at Unichem and sustained double -digit growth in the domestic pain portfolio are key upside risks.

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