IPCA Laboratories - Q3FY14 Update, CMP Rs.815, Maintain Hold, Target increased to Rs.890 - Sushil Finance

IPCA LABORATORIES LTD. - Q3FY14 RESULT UPDATE - CMP Rs.815, Maintain Hold, Target increased to Rs.890

Ipca Labs reported a 18.8% YoY growth in net sales in Q3FY14 on account of an 19.1% rise in its exports business & 15.3% growth in its domestic business. The company continued to surprise positively on the EBIDTA margin front, which recorded a 350 bps YoY rise to 26.1%. The company recorded a forex loss of Rs.24 mn in Q3FY14 vs Rs.186 mn in Q3FY13. The following are the key highlights of the results which are summarized below:

Key Highlights of Q3FY14

- Revenues grew by 18.8% YoY from Rs.7010 mn in Q3FY13 to Rs.8330 mn in Q3FY14. The company's domestic business which now contributes ~35% to the sales of the company registered a growth of 15.3% whereas the export business registered a growth of 19.1%.

- Domestic formulations registered a strong growth of 16% due to trade margin being no more an issue coupled with growth across segments (CVS +12%, Paim Mgmt +23%, Derma +25%, CNS +25% etc.). However, Anti malarial continued to de-grew (-2%). The company also faces some pricing pressure in its old products due to NLEM which saw it de-grow by 6%. FY15E management growth guidance at 15-16%.

- Export formulations grew 20% with growth recorded in generics (25%), Branded (14%) & Tender business (20%). Generics growth contributors - US 9%, EU 66%, Aus /Nzl 32%. Indore SEZ is expected to start production by Q4FY14 with 3 approvals received till now from this facility. Expected filing rate in US to be around 10-12 ANDAs per year. The company expects its US revenue to increase by ~Rs.1250 mn in FY15E from this facility. Ipca also entered into a partnership with a US firm for marketing of 21 ANDAs. It is also in talks to partner with another firm for 11 more ANDAs. Branded Business growth contributors - SE Asia 38%, ME Africa 19%, LataM 67% & W Africa 34%. CIS region registered a de-growth of 3% since shipment to Ukraine did not happen. Promotional Business growth guidance FY15E - 25-30%. Anti malarial formulation (Tender business) guidance maintained at FY14E - Rs.4500 mn with it expected to be around Rs.8000 mn by FY18E with the initiation of injectables (Artesunate & Artemisinin) from FY16E. FY15E target at Rs.5100-5200 mn.

- EBIDTA registered a strong growth of 37.2% to Rs.2173 mn in Q3FY14. 9MFY14 Rs./$ realizations at Rs.60.2/$ vs Rs.54.6/$ in 9MFY13. EBIDTA Margins came in at strong 26.1% vs 22.6% due to product mix change, higher realizations on the export front & 100 bps impact of an exceptional item (claim on loss of profit at its Indore plant) & Rs. 50-60 mn of milestone payment received by the company from a US partnership agreement materializing. The company believes the EBIDTA margin of ~25% is sustainable going ahead.

- Net Profit witnessed a growth of 58.3% amounting to Rs. 1391 mn in Q3FY14 whereas margins were at 16.7%. EPS was at Rs. 11 as against Rs. 7 in Q3FY13.

- Hedging position for FY15E - $ 33 mn at a Rs/$ rate of 63.5 & $10m hedged at Rs.98.35/ sterling pound. Capex for FY14E seen at Rs.3500 mn. The company plans to foray into segments like Opthalmics, hormones & fermentation by FY16E.

OUTLOOK & VALUATION

After a subdued domestic growth in H1FY14, Q3FY14 saw Ipca witnessing a revival in the domestic space, registering a growth of 15.3%. With the management confidently guiding for 15-16% growth in the domestic formulations business coupled with US business expecting to commence shipments from Indore SEZ from March 14 & strong traction expected in its institutional business (expected to garner Rs.4500 mn in FY14E + expectation to reach revenues of Rs.8000 mn eventually driven by portfolio expansion - addition of injectables); we maintain our positive view on the stock. Citing the management's confidence in margins of 25% being sustainable, we have further revised our FY14E & FY15E estimates factoring in higher EBIDTA margins going forward (citing continuing favorable currency & an expected strong thrust on exports post the commercialization of Indore SEZ). Also we introduce FY16E numbers & roll forward our TP to Rs.890 (16x FY16E EPS of Rs.55.6) recommending a HOLD on the stock.

Source : Equity Bulls

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