IPCA Laboratories ; TP: INR378 Buy: Motilal oswal,

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


Smoother road ahead
APIs, Brands, Capacity expansion
 One of the better managed mid-cap pharma companies in India with (1)
vertically integrated business model, (2) strong domestic formulations
business, and (3) profitable international business.
 Sharp 30% correction in stock price on short-term headwinds offers lucrative
long-term entry opportunity.
 Long-term story intact; offers balanced play on growing domestic
formulation opportunity and international formulations on the back of strong
API capabilities.
Consistent industry outperformer in domestic formulations: Over FY05-11, IPCA's
domestic formulation business clocked revenue CAGR of 22.5%, over 1.5x the industry
CAGR of 14%. As a result its market share has improved from 1.18% in FY06 to
1.42% in FY11. IPCA has consistently outperformed the market growth rate on the
back of multiple drivers: (1) Growing share of chronic therapeutic segments in revenue
mix, (2) Focus on product selection, brand building and new launches, (3) Expansion
in the field force, and (4) Proper divisionalization of products. Given all these positives,
we expect IPCA to maintain its track record of outperforming the industry growth rate.
After a muted 10% growth in FY12, we expect growth to rebound to 18% levels in
FY13, translating into FY11-13 CAGR of 14% (v/s 14% for the industry).
APIs offer core competitive advantage of vertical integration: IPCA is one of
India's largest manufacturers of APIs, and the global leader in select APIs, with market
share of 50%+ coupled with healthy profitability. IPCA is aiming to be world leader in
~25 APIs in the next 3-4 years (15 currently). This augurs well for the company as (1)
it offers core competitive advantage of vertical integration benefit, and (2) it creates
opportunity to grow revenues beyond captive demand.
Geographic expansion and new Indore SEZ to drive international formulations
growth: IPCA has built a strong international formulation business with presence in
110 countries across regulated and emerging markets. This business has two main
segments: (1) Branded generics, and (2) Pure generics. We believe IPCA's branded
generic business will grow at CAGR of 20-25% over the next two years on the back of
(1) Strong sales force, (2) Geographic expansion to South/Central American and Western
African countries; and (3) Introduction of new products. The key drivers of pure generics
business are: (1) Europe: Geographic expansion beyond UK, (2) US: FDA approval
for Indore SEZ, and (3) Africa: Lucrative opportunity in Artemether-Lumefantrine, an
anti-malaria formulation.
Expect 25% earning CAGR over FY11-13; Initiate with Buy and price target of
INR378: We expect IPCA to clock FY11-13 PAT and EPS CAGR of 25% on the back
of 18% revenue CAGR coupled with margin expansion. Further, despite INR5b capex
to sustain growth, the company is likely to sustain healthy return ratios and low gearing.
At 9x FY13 earning, the stock trades at 25-50% discount to its historic and peer
valuation. Initiate coverage with Buy rating and target price of INR378 (14x FY13E
EPS), 50% upside.