Ipca Laboratories - Growth on track; Hold - Anand Rathi

Growth momentum intact. We expect 19.5% yoy revenue growth, led by strong growth in its export formulations and API businesses. We also expect EBITDA margin to improve 140bps yoy to 24% on better revenue mix and favourable currency. Led by strong revenue growth and improved margins, we estimate adjusted PAT growth of 24.4% yoy. The company would be reporting MTM loss/gain on its derivative contracts for hedging and foreign currency loans, which we have not factored into our estimates.

Growth across business segments. Export formulations would be key growth driver with 18% yoy rise in revenue, led by anti-malarial tenders in Africa and new product launches across geographies. APIs business is expected to remain on strong growth trajectory and we estimate a growth of 33% yoy in API business segment, mainly led by export sales. Domestic formulations business is expected to register 12% yoy rise in revenue, after considering the impact of new drug pricing policy.

US FDA clearance for Indore plant. The company had voluntarily informed US FDA about some non-compliance activities at its Indore SEZ plant, which was approved in Jul'12. US FDA re-inspected the plant in Apr'13 and re-approval came in Sep'13. The company would start meaningful commercial supplies from 4QFY14 as it has already received approvals for three products.

Our take. We expect Ipca to register strong 18.4% revenue and 24.6% adj. net profit CAGR over FY13-16, along with EBITDA margin improvement of 110bps to 22.8%. We believe that re-approval of Indore SEZ plant would accelerate growth momentum, and expect US$30m revenue from it in FY15e. On reasonable valuations, we maintain Buy on the stock, with price target of Rs. 782 based on 16x FY15e earnings. Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

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