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Ipca Laboratories - Margin pressure but outlook good…
Ipca’s Q3FY11 results were in line with our expectations. Sales
increased 18% YoY to | 466.4 crore as against our expectation of | 465.4
crore backed by 33% rise in the export formulation business and almost
17% growth in domestic branded formulations. EBITDA margins
declined ~330 bps YoY as sales & marketing expenses and expenses
related to newly joined employees went up. Net profit increased 10% to
| 63.9 crore. We expect the export formulations segment to continue its
growth momentum, going forward. Incremental sales from newly added
medical representatives will also support growth in sales from H2FY12E
onwards. However, EBITDA margins will continue to be under pressure
for at-least two or three quarters. We have revised our target to | 325
with ADD rating after incorporating the FY13E numbers.
ƒ Quarterly highlights
During December 2010, Ipca filed an ANDA with USFDA through the
PEPFAR route for a product to be launched from the Indore SEZ facility.
The ANDA filing will trigger inspection of the Indore SEZ by USFDA. It
received approval for one drug from the USFDA. The product shipments
related to the tender business were postponed in Q3FY11and will be
shipped in Q4FY11. Forex gains in Q3FY11 were | 11 crore. Ipca declared
a second interim dividend of | 1 per share i.e. 50% of face value of | 2.
Valuation
Approval for the Indore SEZ by agencies from the regulated markets and
the performance of the newly added sales force will be the key triggers
for the company for the next two fiscals, as the tender business and sales
from semi-regulated market will remain only supplementary in nature.
Ipca is currently trading at | 310 i.e. ~15x FY 12E EPS of | 21.4 and ~10x
FY13E EPS of |29.5. With expected traction from regulated markets and
domestic formulations as guided by the management, we expect the
pressure on margins to ease partially in FY12 and fully in FY13.
Consequently we have valued the stock at | 325 i.e. 11x FY13E EPS of |
29.5, with an ADD rating.
ƒ Sales in line with our expectation
Sales increased 18% YoY to | 466.4 crore in line with our expectation of |
465.4 crore, driven by the formulation business in general and exports
formulation in particular. Overall export formulations registered strong
growth of 33% to | 167.13 crore driven by both the tender and branded
formulations business.
The domestic formulation business witnessed marginal growth of 12% to
| 177.50 crore as sales from the tender business were nil in Q3FY11 as
against | 7 crore in Q3FY10. Excluding the tender business, the braded
formulations business grew 17% YoY. Sales from the newly launched
neurology and nephrology segments are picking up. Domestic API sales
declined marginally ~5% to | 32.2 crore while export API grew 15% to |
86.5 crore.
The UK Medicines and Healthcare products Regulatory Agency (MHRA)
has inspected the Indore SEZ facility and the company is awaiting
approval. Currently, WHO is also inspecting the Indore facility. During
December 2010, it filed an ANDA with USFDA through the PEPFAR route
from this facility. Generally, an ANDA filed through PEPFAR receives
approval in six to nine months. The company expects the inspection to
get triggered by ANDA filing through PEPFAR. Till date, it has filed 22
ANDAs with the USFDA and received approval for 11 products. It is
planning to file 18 ANDA applications in the next 15 months. USFDA
inspection will trigger future growth as the Indore SEZ at full capacity is
capable of generating ~| 300-325 crore of sales per annum.
The tender business during 9MFY11 was | 53 crore (up 183%). Ipca
expects the tender business to generate sales of | 100 crore in FY11 and |
150-200 crore in FY12, which would be driven by WHO tenders.
ƒ EBITDA margin dips by 330 bps
EBITDA margins declined ~330 bps YoY to 19.5% due to an increase in
employee cost and other expenditure. Ipca added ~1200 marketing
employees in the last 12 months or so. On account of this, the employee
cost went up by ~20 bps to 13.9% (as percentage to sales). With an
increase in the sales & marketing cost and other expenses related to
newly joined employees, the overall other expenditure increased ~260
bps to 25.6% (as percentage of sales) YoY. EBITDA in value terms
increased ~1% to | 91 crore. We expect EBITDA margins to continue to
remain under pressure for two or three quarters as newly joined
employees will be completing the learning curve.
Forex gain lifts growth in net profit
Despite marginal growth in EBITDA, the net profit increased 10% to |
63.95 crore as it booked forex gain of | 11.2 crore in Q3FY11 as against
loss of | 1.6 crore in Q3FY10. The effective tax rate increased ~320 bps to
22.5% (as percentage to PBT) on account of a rise in the MAT rate.
Valuation
Approval for the Indore SEZ from various regulatory authorities would be
the key trigger for the company as it has the potential to garner ~| 300-
325 crore of incremental sales to the regulated markets, which fetch
better margins. The facility was inspected by UK MHRA and the company
is currently awaiting approval. WHO is expected to inspect the facility in
February 2011. The USFDA inspection has already been triggered after
the approval for the PEPFAR programme. Ipca is currently incurring cost
of ~ | 20-25 crore per quarter for this facility and also paying taxes as the
tax break will get triggered only after the de-facto start of production. Post
USFDA approval, we believe the company will be in a position to launch
other products (subject to product approval) almost immediately, thanks
to a marketing tie-up with Ranbaxy. Another important trigger will be the
performance of the newly added field force. Ipca has doubled its
marketing strength from ~ 2,500 medical representatives (MRs) (in FY09)
to ~ 5000 MRs (in 9MFY11) in the last 21 months. We expect the newly
added employees to contribute at the EBITDA level from Q2FY12.
Ipca is currently trading at | 310 i.e. ~15x FY12E EPS of | 21.4 and ~10x
FY13E EPS of |29.5. With expected traction from regulated markets and
domestic formulations as guided by the management, we expect the
pressure on margins to ease partially in FY12 and fully in FY13.
Consequently, we have valued the stock at | 325 i.e. 11x FY13E EPS of |
29.5, with an ADD rating.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Ipca Laboratories - Margin pressure but outlook good…
Ipca’s Q3FY11 results were in line with our expectations. Sales
increased 18% YoY to | 466.4 crore as against our expectation of | 465.4
crore backed by 33% rise in the export formulation business and almost
17% growth in domestic branded formulations. EBITDA margins
declined ~330 bps YoY as sales & marketing expenses and expenses
related to newly joined employees went up. Net profit increased 10% to
| 63.9 crore. We expect the export formulations segment to continue its
growth momentum, going forward. Incremental sales from newly added
medical representatives will also support growth in sales from H2FY12E
onwards. However, EBITDA margins will continue to be under pressure
for at-least two or three quarters. We have revised our target to | 325
with ADD rating after incorporating the FY13E numbers.
ƒ Quarterly highlights
During December 2010, Ipca filed an ANDA with USFDA through the
PEPFAR route for a product to be launched from the Indore SEZ facility.
The ANDA filing will trigger inspection of the Indore SEZ by USFDA. It
received approval for one drug from the USFDA. The product shipments
related to the tender business were postponed in Q3FY11and will be
shipped in Q4FY11. Forex gains in Q3FY11 were | 11 crore. Ipca declared
a second interim dividend of | 1 per share i.e. 50% of face value of | 2.
Valuation
Approval for the Indore SEZ by agencies from the regulated markets and
the performance of the newly added sales force will be the key triggers
for the company for the next two fiscals, as the tender business and sales
from semi-regulated market will remain only supplementary in nature.
Ipca is currently trading at | 310 i.e. ~15x FY 12E EPS of | 21.4 and ~10x
FY13E EPS of |29.5. With expected traction from regulated markets and
domestic formulations as guided by the management, we expect the
pressure on margins to ease partially in FY12 and fully in FY13.
Consequently we have valued the stock at | 325 i.e. 11x FY13E EPS of |
29.5, with an ADD rating.
ƒ Sales in line with our expectation
Sales increased 18% YoY to | 466.4 crore in line with our expectation of |
465.4 crore, driven by the formulation business in general and exports
formulation in particular. Overall export formulations registered strong
growth of 33% to | 167.13 crore driven by both the tender and branded
formulations business.
The domestic formulation business witnessed marginal growth of 12% to
| 177.50 crore as sales from the tender business were nil in Q3FY11 as
against | 7 crore in Q3FY10. Excluding the tender business, the braded
formulations business grew 17% YoY. Sales from the newly launched
neurology and nephrology segments are picking up. Domestic API sales
declined marginally ~5% to | 32.2 crore while export API grew 15% to |
86.5 crore.
The UK Medicines and Healthcare products Regulatory Agency (MHRA)
has inspected the Indore SEZ facility and the company is awaiting
approval. Currently, WHO is also inspecting the Indore facility. During
December 2010, it filed an ANDA with USFDA through the PEPFAR route
from this facility. Generally, an ANDA filed through PEPFAR receives
approval in six to nine months. The company expects the inspection to
get triggered by ANDA filing through PEPFAR. Till date, it has filed 22
ANDAs with the USFDA and received approval for 11 products. It is
planning to file 18 ANDA applications in the next 15 months. USFDA
inspection will trigger future growth as the Indore SEZ at full capacity is
capable of generating ~| 300-325 crore of sales per annum.
The tender business during 9MFY11 was | 53 crore (up 183%). Ipca
expects the tender business to generate sales of | 100 crore in FY11 and |
150-200 crore in FY12, which would be driven by WHO tenders.
ƒ EBITDA margin dips by 330 bps
EBITDA margins declined ~330 bps YoY to 19.5% due to an increase in
employee cost and other expenditure. Ipca added ~1200 marketing
employees in the last 12 months or so. On account of this, the employee
cost went up by ~20 bps to 13.9% (as percentage to sales). With an
increase in the sales & marketing cost and other expenses related to
newly joined employees, the overall other expenditure increased ~260
bps to 25.6% (as percentage of sales) YoY. EBITDA in value terms
increased ~1% to | 91 crore. We expect EBITDA margins to continue to
remain under pressure for two or three quarters as newly joined
employees will be completing the learning curve.
Forex gain lifts growth in net profit
Despite marginal growth in EBITDA, the net profit increased 10% to |
63.95 crore as it booked forex gain of | 11.2 crore in Q3FY11 as against
loss of | 1.6 crore in Q3FY10. The effective tax rate increased ~320 bps to
22.5% (as percentage to PBT) on account of a rise in the MAT rate.
Valuation
Approval for the Indore SEZ from various regulatory authorities would be
the key trigger for the company as it has the potential to garner ~| 300-
325 crore of incremental sales to the regulated markets, which fetch
better margins. The facility was inspected by UK MHRA and the company
is currently awaiting approval. WHO is expected to inspect the facility in
February 2011. The USFDA inspection has already been triggered after
the approval for the PEPFAR programme. Ipca is currently incurring cost
of ~ | 20-25 crore per quarter for this facility and also paying taxes as the
tax break will get triggered only after the de-facto start of production. Post
USFDA approval, we believe the company will be in a position to launch
other products (subject to product approval) almost immediately, thanks
to a marketing tie-up with Ranbaxy. Another important trigger will be the
performance of the newly added field force. Ipca has doubled its
marketing strength from ~ 2,500 medical representatives (MRs) (in FY09)
to ~ 5000 MRs (in 9MFY11) in the last 21 months. We expect the newly
added employees to contribute at the EBITDA level from Q2FY12.
Ipca is currently trading at | 310 i.e. ~15x FY12E EPS of | 21.4 and ~10x
FY13E EPS of |29.5. With expected traction from regulated markets and
domestic formulations as guided by the management, we expect the
pressure on margins to ease partially in FY12 and fully in FY13.
Consequently, we have valued the stock at | 325 i.e. 11x FY13E EPS of |
29.5, with an ADD rating.
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