Ipca Labs: Changing mix  TP of INR407; :: HSBC Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Ipca Labs: Changing mix
 Growth outlook strong on strong domestic and export
formulations, sales growth guidance of 18-20% in FY12
 Product mix improves with gradual shift from acute (anti-malarials)
to chronic therapies like CVS and pain management
 Initiate as N(V) with a TP of INR407; key catalyst is FDA approval
for Indore SEZ facility
Investment thesis
Ipca has gradually scaled up formulations on the
back of its strong API support and maintained a
sales CAGR of 20% over the last five years. We
expect strong growth in domestic and export
formulations.
We believe the next three years will be strong for
Ipca’s generics and branded generics. The
company has established itself in several chronic
therapies in the domestic market while
maintaining its dominance in anti-malarials. This
has gradually improved margins which have
stabilized at 20-21%.
We forecast a 23% CAGR in net profits over the
next two years on sales growth of 17%. We
believe the company is at the inflection point in
the US, where, despite late entry, it can make
material gains on the back of strong cost
leadership. Gaining FDA approval for its SEZ
Indore facility is the key catalyst for the stock in
the near term, in our view. We build in modest
assumptions for this in FY12, with stronger
growth in FY13.
Domestic formulations – changing product
mix: Ipca has slowly transformed itself from a
large player in acute therapies into an emerging
leader in the pain and cardiovascular segments.
The company has plans for fewer but bigger
launches on the back of strong API support. We
forecast 15% growth over the next two years in
sales of domestic formulations. The company has
guided for 18-20% growth in FY12.
Export formulations outlook strong in branded
and generic markets: The company has guided
for c25-30% growth over FY12 in branded
markets, largely in Russia/CIS. Among generics
markets, the UK is the largest. The US could
provide major upside once Ipca receives approval
for its SEZ Indore facility.
Institutional business likely to sustain: Ipca’s
supply of ACT drugs for malaria under the
Affordable Medicines Facility for Malaria
(AMFm) is another area of growth.
Margins likely to sustain at 20%; initiate as
Neutral (V): We forecast c17% sales growth and
c23% earnings growth over the next two years.
We value Ipca at 15x 1-yr forward PE to arrive at
our TP of INR407.