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Ipca Laboratories Ltd>
  • CMP : 928.1 Chg : -88.25 (-8.68%)
  • Target : 1,000.0 (8.70%)
  • Target Period : 12-18 Month

26 May 2022

Domestic outperformance but exports challenging…

About The Stock

Ipca is a fully integrated pharma company manufacturing over 350 formulations and 80 APIs with exports contributing 50% of revenues in FY21.

  • Major therapeutic segments include pain management, cardiovascular and anti-diabetics, anti-infectives, anti-malarials, which together account for 75% of revenues
  • Revenue break-up FY22 – Formulations:69% (Domestic:43%, Export:26% - Export Generic:13%, Export Institutional:5%, Export Branded:7%), API:23% (Export API:17%, Domestic API: 6%), Subsidiaries: 7%

Revenues were in line with estimates but margins were a miss.

  • Sales were up 15.7% YoY to ₹ 1289.1 crore
  • EBITDA was at ₹ 219.3 crore, down 4.2%YoY with margins at 17%
  • Consequent PAT was at ₹ 130.2 crore (down 19.2% YoY)
What should Investors do?

Ipca’s share price has grown by ~3.7x over the past five years (from ~₹ 250 in May 2017 to ~₹ 920 levels in May 2022).

Downgraded from BUY to HOLD due to challenges in exports generics and delay in traction from API exports along with some margin pressure in medium term due to MR addition and Fuel / Logistics expenses

Target Price Valuation

Valued at ₹ 1000 i.e. 25x P/E on FY24E EPS of ₹ 39.9

Key Triggers for future price performance
  • Incremental growth in other therapies (excluding malaria), especially non-communicable diseases like pain management, cardio-diabetology, etc. The overall portfolio is poised for steady growth due to launch of new divisions and additional MRs (1200) in FY23
  • Sustained traction from branded and generics exports sales with a revival in the EU likely to mitigate the US void. Better offtake and market gains in export of Sartan APIs
  • Commissioning of Devas plant and additional capacities from Ratlam
  • US traction will take longer due to USFDA import alerts for the Ratlam facility that is the only API source for Silvassa and Pithampur formulations
New Stock Ideas

Apart from Ipca, in our healthcare coverage we like Ajanta.

  • Ajanta Pharma is a focused player in branded, launching maximum number of first time launches with new drug delivery system (NDDS)


  • BUY with target price of ₹ 1955

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Revenues 3,773.2 4,648.7 5,419.9 5,829.8 12.7 6,401.4 7,085.7 10.2
EBITDA 690.1 903.7 1,544.3 1,309.2 24.1 1,345.1 1,594.3 10.4
EBITDA Margins (%) 18.3 19.4 28.5 22.5 - 21.0 22.5 -
Net Profit 442.2 603.4 1,139.9 884.1 35.4 829.5 1,012.9 7.0
EPS (|) 17.4 23.8 44.9 34.8 - 32.7 39.9 -
PE (x) 52.8 38.7 20.5 26.4 - 28.1 23.0 -
EV to EBITDA (x) 34.0 25.9 14.8 17.4 - 16.5 13.4 -
Price to book (x) 7.5 6.4 5.0 4.2 - 3.8 3.3 -
RoNW (%) 14.2 16.6 24.2 16.1 - 13.4 14.4 -
RoCE (%) 15.0 17.6 27.1 17.4 - 16.2 17.4 -
Debt / Equity 0.1 0.1 0.1 0.1 - 0.1 0.1 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results: Strong domestic formulations, margins down

  • Revenues grew 16% YoY to | 1289 crore, mainly on the back of strong YoY growth of 27% in domestic formulations to | 552 crore. Export formulations grew a mere 3% YoY to | 347 crore. In exports, branded business grew 2% YoY | 103 crore. APIs sales declined 1% YoY to | 258 crore. EBITDA margins declined 352 bps YoY to 17% amid YoY 269 bps decline in gross margins to 67% and higher other expenditure. Subsequently, EBITDA de-grew 4% YoY to | 219 crore. PAT de-grew 19.2% YoY to | 130 crore. Delta vis-à-vis EBITDA was mainly due to higher tax rate, interest expenses, depreciation and lower other income
  • Ipca Laboratories’ revenues were in line with I-direct estimates but margins were a significant miss. Ipca remains a decent player with judicious mix of strong domestic franchise and a spread out exports model with healthy balance sheet. Going ahead, with firm growth tempo in domestic formulations, good prospects both for API exports, formulation exports, we expect further improvement in financial parameters

Q4FY22 Earnings Conference Call highlights

  • Domestic formulations: Segment wise FY22 YoY growth: pain-management: 20%, cardio & anti-diabetic: 14%, anti-bacterial: 55%, dermatology: 41%, cough & cold: 72%
  • Segment wise percentage of revenue: pain management: 49%, cardio & anti-diabetic: 17%, anti-bacterial: 7%, dermatology: 5%, anti-malarial: 5%, cough & cold: 5%, CNS and urology: 3% each
  • In India, Covid contribution is spread across anti-bacterial, anti-malarial and cough and cold. Ex-HCQ, Ipca grew 13% YoY in FY22. The management guided for ~ 500 additional MRs in Q1FY23 as four more divisions are to be launched in FY23. They guided for 12-13% growth in FY23 with Q1 expected to be lower due to poor offtake for anti-bacterial and cough & cold. The company had two months of inventory. Hence, NLEM price hike is likely from June, 2022 and price hike in non-NLEM drugs to be ~8% vs. normal 6% due to inflationary environment
  • Exports formulations: Institutional business to remain flat YoY in FY23. Artemisinin prices has increased from US$150 to US$250-260. Generics in UK were impacted as Ipca has started its own distribution with seven registrations being commercialised, six to seven more to be commercialised soon. The management guided for 5% growth in generics. Normalisation is a few quarters away. UK FY22 sales | 84 crore (own: | 23 crore, partner:
    | 61 crore); FY21: | 151 crore. Branded business was partly affected in CIS region (Ukraine: | 15 crore in FY22). Russia & CIS FY22 sales: | 134 crore vs. | 164 crore in FY21
  • API:  API decline is mainly due to Azido impurity in Sartans and some sales return for the same. Ipca has lost some market share in Sartans. The management indicated at 12% growth in FY23. Devas has started one intermediate while another will start in the next few months. Realisations from this facility is likely to flow in from Q2FY24 post all regulatory clearances
  • Gross margins to improve post softening of intermediates prices. It is already seeing 5-10% retracement in prices
  • Q4FY22 EBITDA impacted due to impairment of | 22.46 crore, higher fuel cost (up 60% up Q4FY22 and up 49% in FY22), higher freight cost, about
    | 20 crore of sales return related to Sartans, 8% general increment and | 60 crore of incentive provision. Expenses are likely to remain elevated as MRs increase from 4,800 to 6,000 and on launch of four marketing divisions
  • Management guided for 12% YoY topline growth with margins at 22-22.5%.
Variance Analysis

  Q4FY22 Q4FY22E Q4FY21 YoY (%) Q3FY22 QoQ (%)   Comments
Revenue 1,289.1 1,265.0 1,114.6 15.7 1,430.5 -9.9   Steady YoY due to growth in domestic formulations across therapies being offset by exports and APIs
Raw Material Expenses 426.2 440.9 338.6 25.9 498.6 -14.5    
Gross margins (%) 66.9 65.1 69.6 -269 bps 65.1 179 bps   YoY decline amid inflation in input cost
Employee Expenses 297.7 250.9 257.6 15.6 283.7 5.0   YoY increase amid annual increaments and additional MRs
Other Expense 345.8 306.8 289.5 19.4 340.4 1.6   YoY increase mainly due to higher freight, energy cost, impairment of |22.46 crore, | 20 crore of sales return related to sartans 
Operating Profit (EBITDA) 219.3 266.5 228.8 -4.2 307.8 -28.8    
EBITDA (%) 17.0 21.1 20.5 -352 bps 21.5 -451 bps   YoY decline mainly due to higher employee and other expenditure
Interest  3.4 1.4 1.7 98.8 1.4 136.4    
Depreciation 60.9 58.7 52.5 16.1 58.7 3.9    
Other Income 14.5 11.4 19.9 -27.0 12.9 12.5    
PBT 169.5 217.8 194.5 -12.9 260.7 -35.0    
Tax  28.8 39.2 30.9 -7.0 57.3 -49.8    
Tax Rate (%) 17.0 18.0 15.9 106 bps 22.0 -503 bps    
Reported PAT 130.2 174.2 161.2 -19.2 197.0 -33.9   YoY Delta vis-à-vis EBITDA was mainly due to higher tax rate, interest expenses, depreciation and lower other income.
EPS (|) 5.1 6.9 6.4 -19.2 7.8 -33.9    
Key Metrics                
Domestic formulations 551.8 503.0 433.6 27.3 645.3 -14.5   Reported strong YoY growth across segments
Export - Generic 163.9 168.8 160.8 1.9 179.1 -8.5   Slow pick-up across geographies and distribution challenges in UK
Export - Institutional 79.9 76.2 76.2 4.9 59.2 35.0    
Export - Branded  102.7 111.1 101.0 1.7 109.2 -6.0    
API 257.8 300.0 259.9 -0.8 309.4 -16.7   YoY decline mainly due to Sartans impurity issue 

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I/We, Siddhant Khandekar, Inter CA, Raunak Thakur, PGDM, Kush Mehta, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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