IPCA Laboratories - Indore facility gets USFDA nod - Edelweiss

IPCA Laboratories (IPCA) has received final USFDA nod for its Indore SEZ facility. This is a critical milestone as it will enable the company scale up its US business, which has been facing capacity constraints. While commercialisation would take over three to four months, IPCA expects the facility to contribute INR1bn to FY15 sales. The company currently markets eight products in the US of 15 approvals and expects to commercialise the balance seven via site transfer. We anticipate strong earnings growth drivers (27% earnings CAGR) over FY13-15E, while favourable currency offers upside to consensus earnings. Maintain 'BUY'.

Indore facility to augment US revenue

While the Indore SEZ facility will take some time to scale up production, we expect its commercialisation by Q4FY14. As per management, it will contribute INR1bn (USD15-20mn) to FY15E sales; IPCA is targeting USD275-300mn by 2020 from the US. Our numbers build in USD65mn in US sales in FY15 from USD40mn in FY14.

US pipeline promising

IPCA has received 15 USFDA approvals till date, of which only eight have been commercialised. The company plans to site transfer the balance seven products from the existing Silvassa facility to Indore SEZ. It has till date filed 36 products in the US and has 21 pending approvals, primarily from Indore SEZ.

Outlook and valuations: Positive; maintain 'BUY'

Approval to Indore SEZ facility adds visibility to US growth over long term. Going forward, we perceive multiple drivers that will impart higher earnings growth: (a) better traction in domestic market; (b) strong scale up potential in institutional business (guided INR8bn sales over FY17 from INR4.6bn in FY14); (c) ramp up in US post FDA approval; and (d) niche opportunities or 505(2) projects pipeline in the US. We, thus, expect continued multiple expansion and value the stock at 16x FY15E EPS. Post factoring in higher USD/INR of 62/60 (58/56 earlier) for FY14-15E, we revise TP to INR762 (earlier INR715). We maintain 'BUY/SO' recommendation/rating on the stock.

Source : Equity Bulls

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