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Research
IPCA Labs - Strong earning visibility merits re-rating; Raise TP - Religare
Posted On : 2014-03-29 02:34:18( TIMEZONE : IST )
Our recent management interaction reinforced our confidence on IPCA's structurally improving margin trajectory led by (a) imminent scale-up in US sales and (b) firm positioning in anti-malarial tender biz. We raise our TP to Rs1030 (vs Rs880) to factor raised margin assumptions driving 3-4% EPS upgrade and higher imputed P/E of 18x 1-yr fwd (vs 16x earlier). Rising growth visibility (26% EPS CAGR), improving RoIC & FCF generation deserve re-rating closer to large peers. Reiterate IPCA as top mid-cap pick.
- Anti-malarial tender business on firm footing: Backward integration (only player), wide product portfolio and rising prospects for generic participation in global anti-malarial business (52% share now) bode well for IPCA. Higher share in existing combination products and Artesunate injection (by 2015) to drive 15% annual growth for IPCA (on elevated base). This business generates 25%+ EBITDA margins.
- US biz set to take-off on new capacity coming onstream: We expect new Indore facility to generate revenues from 1QFY15, enabling doubling of US sales by FY16 to US$90mn. ANDA portfolio of 38 (17 approved) to drive growth, with cost leadership in key molecules backed by distribution partnership with 4 players.
- Earnings raised on stronger margin outlook: We raise our FY14-16E EPS est by 3-4% led by higher visibility in anti-malarial tender biz and higher margin assumption (up by 50-70bps) led by operating leverage and better product mix (lower API).
- Improving return ratio, FCF generation to drive re-rating: Our target P/E is set at 18x 1 yr fwd, at 10% discount to large peers which is justified noting (a) stronger earnings visibility (26% vs 21% for sector), (b) 400bps cumulative RoIC improvement by FY16E and (c) higher FCF generation (from Rs1bn to Rs2.4bn by FY16E). Key catalysts - Indore SEZ commercialization in 1QFY15, higher visibility on anti-malarial institutional business. Key risks: Currency fluctuation & regulatory delays.
