Reduce IPCA Ltd For Target Rs. 1,350 By Choice Broking Ltd
Moderate Growth; EBITDA Expansion Limited
IPCA’s performance outlook remains unchanged, with revenue expected to grow 9–10% and EBITDA margins expanding only modestly by ~75bps. Domestic formulations may register some growth, but this will be offset by generic pricing pressures and volatility in institutional revenue, with few new launches in the US. The API segment is also anticipated to deliver gradual growth. Management expects EBITDA to expand by only ~75bps in FY26E, as synergy benefits from the Unichem integration have been delayed to FY27-end. We have revised our earnings slightly upwards by 1.2%/1.1% for FY26E/FY27E. The company is now valued at an average of FY27 and FY28 EPS at 25x (unchanged), resulting in a target price of INR 1,350 (unchanged), and we maintain our REDUCE rating.
Revenue Beat but Margins and PAT See Sequential Pressure
? Revenue grew 10.3% YoY / 2.8% QoQ to INR 23.1 Bn (vs. CIE estimate: INR 23.4 Bn).
? EBITDA rose 6.0% YoY / fell 2.9% QoQ to INR 4.2 Bn; margins contracted 73 bps YoY / 105 bps QoQ to 18.0% (vs. CIE estimate: 19.7%).
? PAT increased 21.3% YoY / declined 14.5% QoQ to INR 2.7 Bn (vs. CIE estimate: INR 2.4 Bn)
Formulations Growth Limited by Pricing and Market Pressures
Formulations have sustained low double-digit YoY growth, and we expect this trend to continue in FY26. While the domestic business is likely to record strong growth, it will be partially offset by pricing pressures in generics and minimal growth in international markets. Four to five product launches are planned in the US in FY26; however, synergy benefits from the Unichem integration have been delayed and are now expected to materialise only from FY27-end. Additionally, regulatory delays in Myanmar and soft demand in Brazil are likely to result in muted growth in RoW markets.
API Segment Recovery Gradual; Price Erosion May Cap Growth
The API segment has seen a recovery in demand, particularly from regulated markets, and we expect gradual improvement in FY26E. Domestic demand is anticipated to remain steady, with no significant volume spike expected. New product launches will be limited to two to three. However, ongoing price erosion in the overall market may constrain growth below expectations.
Management Call - Highlights
Formulations Business
? Domestic: Specialty focus (derma, urology, DNS) with 3–4% annual field force expansion to drive sustained growth and margin improvement.
? US: 4 products launched in FY26 to date, 4-5 more launches
? Margin drag from loss of share in 4 high-margin products; gains in other SKUs yet to offset.
? 15–16 products in pipeline; synergy benefits from Ipca–Unichem integration expected from FY27.
? RoW: Asia (Myanmar) and Brazil soft; recovery timelines uncertain.
? Institutional: Flat YoY; no growth expected in FY26 due to funding constraints.
API Business
? Prices stable after prior downtrend; no major RM cost headwinds.
? 2–3 new APIs planned annually to diversify and grow portfolio.
Outlook
? FY26 revenue growth guidance maintained at 9–10%.
? Consolidated EBITDA margin guidance revised from +100 bps to +75 bps YoY (drag from Unichem); standalone margin tracking ahead of plan.
? India formulations to sustain double-digit growth with margin expansion from productivity gains in new specialty-focused MRs.
? US growth to be gradual in FY26; stronger from FY27 as synergy benefits and filings mature.
? RoW growth to be led by Europe, ANZ, Canada; UK pricing pressure to persist short term.
? API growth to be volume-led with stable pricing.
? Institutional business to remain flat YoY.
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