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IPCA Labs — Mixed quarter; Buy
Country Overview
1Q led by strong export formulations
IPCA’s 1Q profits at Rs617mn (up 59% YoY) beat BofAMLe led by forex gains of
Rs91mn while adjusted profits were 7% below est. Strong export formulations (up
69% YoY) led to revenue beat (at Rs5.3bn, up 27%),despite slower domestic
formulation growth at 12% (vs 16% est). We lower our FY12-13E forecasts by 6-
8% to factor (a) lower domestic formulations growth (17% vs 20% earlier) & (b)
delay in USFDA approval for Indore SEZ (to 4Q). However, our PO is raised to
Rs375 (at 14x P/E, 15% disc.to mid-cap peers), mainly on rollover to FY13E EPS.
Export formulations shine; Domestic momentum to pick up
Restructuring of ailing top brands & fieldforce attrition slowed domestic growth
momentum in 1Q. Export formulations surged 69% YoY driven by strong US, CIS
& institutional business (up 11x at Rs533mn). Pick-up in domestic formulations
led by strong fieldforce of 4200+, higher visibility in anti-malarial institutional
(50%+ growth) & strong exports to result in 19% sales CAGR (FY11-14E).
Margins to expand on productivity gains
1Q margin gain of 92bps (at 18%) was restricted due to slower domestic
formulations growth affecting mix. We expect recently added fieldforce to become
productive from 2H, resulting in gradual margin expansion to 19%+ levels after 2-
3 quarters. Unabsorbed overheads of ~Rs225mn annually in Indore SEZ are
likely to recede on start of UK shipments (1HFY12) & expect facility approval by
4Q (vs 1H earlier). Higher anti-malarial tender wins can provide upside risk.
Management call highlights
(a) Anti-malarial institutional sales to exceed Rs2bn for FY12 (Rs1.2bn in FY11),
(b) Forward hedges (52% of exports) at ~Rs47.6/US$ to protect losses from
currency fluctuations (c) To spend Rs2.5bn in capex for capacity expansion.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IPCA Labs — Mixed quarter; Buy
Country Overview
1Q led by strong export formulations
IPCA’s 1Q profits at Rs617mn (up 59% YoY) beat BofAMLe led by forex gains of
Rs91mn while adjusted profits were 7% below est. Strong export formulations (up
69% YoY) led to revenue beat (at Rs5.3bn, up 27%),despite slower domestic
formulation growth at 12% (vs 16% est). We lower our FY12-13E forecasts by 6-
8% to factor (a) lower domestic formulations growth (17% vs 20% earlier) & (b)
delay in USFDA approval for Indore SEZ (to 4Q). However, our PO is raised to
Rs375 (at 14x P/E, 15% disc.to mid-cap peers), mainly on rollover to FY13E EPS.
Export formulations shine; Domestic momentum to pick up
Restructuring of ailing top brands & fieldforce attrition slowed domestic growth
momentum in 1Q. Export formulations surged 69% YoY driven by strong US, CIS
& institutional business (up 11x at Rs533mn). Pick-up in domestic formulations
led by strong fieldforce of 4200+, higher visibility in anti-malarial institutional
(50%+ growth) & strong exports to result in 19% sales CAGR (FY11-14E).
Margins to expand on productivity gains
1Q margin gain of 92bps (at 18%) was restricted due to slower domestic
formulations growth affecting mix. We expect recently added fieldforce to become
productive from 2H, resulting in gradual margin expansion to 19%+ levels after 2-
3 quarters. Unabsorbed overheads of ~Rs225mn annually in Indore SEZ are
likely to recede on start of UK shipments (1HFY12) & expect facility approval by
4Q (vs 1H earlier). Higher anti-malarial tender wins can provide upside risk.
Management call highlights
(a) Anti-malarial institutional sales to exceed Rs2bn for FY12 (Rs1.2bn in FY11),
(b) Forward hedges (52% of exports) at ~Rs47.6/US$ to protect losses from
currency fluctuations (c) To spend Rs2.5bn in capex for capacity expansion.
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