Anand Rathi: Ipca Laboratories Strong growth, compelling valuations; initiate with Buy

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Ipca Laboratories
Strong growth, compelling valuations; initiate with Buy
We initiate coverage on Ipca with Buy and target price of `356.
We are positive on the stock on our expectations of higher-thanindustry
growth in domestic formulations, scale-up of exports
formulations, upside from Indore SEZ, strong return ratios and
valuations at substantial discount (50% to large-cap peers).
 Domestic formulations to outperform industry. Ipca reported
23% CAGR in domestic formulations over FY05-10, higher than
industry CAGR of 14-15%. Ipca would continue outperforming
the industry and see 17% CAGR over FY10-13e driven by thrust
on lifestyle diseases and launch of 18-20 new products each year.
 Exports formulations to scale up. With continued geographical
forays and additions to its product portfolio, Ipca is well poised to
witness 24.2% FY10-13e CAGR in export formulations. Approval
for the Indore SEZ plant would help scale up formulations in the
US market and may provide upside of 5-10% to total revenue.
 Strong financials with upside triggers. We expect Ipca to
report 16.7% revenue and 21.7% PAT CAGRs as well as strong
RoE of ~26% and RoCE of ~20% over FY10-13e. Approval of
the Indore SEZ plant and higher-than-expected supplies of
artemether-lumafantrine would provide upside to our estimates.
 Valuation and risks. We value Ipca at `356 based on 14x FY12e
earnings. At CMP, the stock trades at 14.6x FY11e and 11.6x FY12e
earnings. Risks: Currency fluctuation (as 52% of revenue is
contributed by exports.