Ipca Labs - Revenues Outperform, Margins Lower due to higher R & D - Karvy

Revenues increased by 26.9%YoY to Rs8,056mn compared to Rs6,344mn in Q1FY13. Operating margins are down by 110bps to 21.2% as against 22.3% in Q1FY13 due to higher R & D expenses. Net Profit increased by 67%YoY to Rs718mn in Q1FY14 in line with our expectation of Rs 702mn.

Revenue Details: Ipca's Export formulation grew by 46.9% YoY to Rs.3300mn higher than our expectations of Rs2,945mn. However, Domestic formulation business increased by 12 % YoY to Rs2504mn in line with our expectation of Rs2511mn. In Exports formulations, Branded promotion revenues grew by 62%YoY to Rs730mn. Institutional business grew by 40%YoY to Rs839mn while Generic Business showed growth of 47%YoY to Rs1,730mn. In APIs, Exports increased by 17%YoY to Rs1,666mn while Domestic grew by 16%YoY to Rs456mn.

Margins Contract: Company's EBITDA Margins stood at 21.2% (our estimates 22.5%) in Q1FY14 lower than 22.3% reported in Q1FY13. Margins were lower on account of high material cost due to product-mix and higher R & D expenses due to clinical trials conducted for a 505(b)2 product. Company's net profit stood at Rs718mn in Q1FY14, in line with our estimate of Rs. 702mn.

Outlook and Valuation: We decrease our revenues by 0.4% to Rs34.7bn for FY14E and by 1 % to Rs 41.6 bn for FY 15E mainly on account of downgrade in Export API business. We marginally downgrade EBIDTA margins but our EPS downgrade is 3.1 % for FY14E to Rs37.8 and by 1.1% for FY15E to Rs45.8. We reduce our price target by 1 % to Rs687 based on 15x FY15E. Due to limited upside (3%) we maintain our SELL recommendation on the stock.

Source : Equity Bulls

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