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Captivating Growth Story!!
IPCA has transformed itself from a leading API manufacturer to a fully integrated formulation company. It has an
intriguing business mix of branded formulations as well as generics and is well diversified geographically. We
anticipate export formulations to register 30% growth over FY11-14E mainly driven by increasing contribution
from institutional based sales and ramp up in its US generics biz. The successful USFDA inspection - Indore
SEZ facility shall do away with capacity constraints and pave way for market share gains in existing products
and facilitate new launches. The domestic formulations segment is expected to rebound in FY13E with increasing
contribution from CVS, pain management segment while field force productivity shows an uptick.
Investment Rationale
Integrated Generic Play
IPCA has transformed itself from an API manufacturer to a fully integrated
formulation company. Formulations constitute 74% of the product mix with APIs
mainly captively consumed. The company follows a two pronged growth strategy
viz., emphasis on branded formulations with front end presence in fast growing
emerging markets and is a preferred supplier for generics (APIs/formulations) to
its partners based in the regulated markets and thus stays away from any patent
litigation.
Export Formulations – US Generics to gain traction
We anticipate contribution from export formulations to increase from 37% of
sales (FY11) to 48% in FY14E (implying 30% CAGR). The successful USFDA
inspection (pending approval) – Indore SEZ paves way for market share gains in
existing products (site transfers underway) and permits it to accelerate new
product launches post timely approvals. On the other hand, the promotional
markets (CIS, Asia etc.) are expected to grow by 26% over FY11-14E on the
back of new launches.Notably, funding commitment over AMFm programs and
increased off take of Artermether-Lumefantrine (AL) formulation ensures revenue
visibility in its institutional business.
Domestic Pharma business - Power Brands..!
IPCA holds 1.7% market share in the domestic Pharma market (MAT Dec’11).
Anti-malarials, CVS and pain management constitute more than 70% of the
domestic business. With rising MR productivity (domestic field force: 4000) and
growing contribution from CVS & pain management, we anticipate the company
to witness a rebound and register 15% growth in FY13E respectively.The proposed
National Pharmaceutical Pricing Policy (NPPP), if implemented in its current form,
will have negligible impact as IPCA’s products are not priced at the top-end.
Valuation
IPCA’s growth mantra revolves around creating a competitive position in
formulations by leveraging on its API goldmine. We expect acceleration in export
formulation revenues mainly led by the generics arm (US market in particular
post FDA approval to its Indore site) and sustained growth in its institutional
segment.Gradual recovery in domestic formulations hereon shall add to growth
momentum. At CMP, the stock trades at 12.9x FY12E and 11.6x FY13E earnings.
We recommend Buy on the stock with a revised target price of ` 402 (12x FY14E
EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Captivating Growth Story!!
IPCA has transformed itself from a leading API manufacturer to a fully integrated formulation company. It has an
intriguing business mix of branded formulations as well as generics and is well diversified geographically. We
anticipate export formulations to register 30% growth over FY11-14E mainly driven by increasing contribution
from institutional based sales and ramp up in its US generics biz. The successful USFDA inspection - Indore
SEZ facility shall do away with capacity constraints and pave way for market share gains in existing products
and facilitate new launches. The domestic formulations segment is expected to rebound in FY13E with increasing
contribution from CVS, pain management segment while field force productivity shows an uptick.
Investment Rationale
Integrated Generic Play
IPCA has transformed itself from an API manufacturer to a fully integrated
formulation company. Formulations constitute 74% of the product mix with APIs
mainly captively consumed. The company follows a two pronged growth strategy
viz., emphasis on branded formulations with front end presence in fast growing
emerging markets and is a preferred supplier for generics (APIs/formulations) to
its partners based in the regulated markets and thus stays away from any patent
litigation.
Export Formulations – US Generics to gain traction
We anticipate contribution from export formulations to increase from 37% of
sales (FY11) to 48% in FY14E (implying 30% CAGR). The successful USFDA
inspection (pending approval) – Indore SEZ paves way for market share gains in
existing products (site transfers underway) and permits it to accelerate new
product launches post timely approvals. On the other hand, the promotional
markets (CIS, Asia etc.) are expected to grow by 26% over FY11-14E on the
back of new launches.Notably, funding commitment over AMFm programs and
increased off take of Artermether-Lumefantrine (AL) formulation ensures revenue
visibility in its institutional business.
Domestic Pharma business - Power Brands..!
IPCA holds 1.7% market share in the domestic Pharma market (MAT Dec’11).
Anti-malarials, CVS and pain management constitute more than 70% of the
domestic business. With rising MR productivity (domestic field force: 4000) and
growing contribution from CVS & pain management, we anticipate the company
to witness a rebound and register 15% growth in FY13E respectively.The proposed
National Pharmaceutical Pricing Policy (NPPP), if implemented in its current form,
will have negligible impact as IPCA’s products are not priced at the top-end.
Valuation
IPCA’s growth mantra revolves around creating a competitive position in
formulations by leveraging on its API goldmine. We expect acceleration in export
formulation revenues mainly led by the generics arm (US market in particular
post FDA approval to its Indore site) and sustained growth in its institutional
segment.Gradual recovery in domestic formulations hereon shall add to growth
momentum. At CMP, the stock trades at 12.9x FY12E and 11.6x FY13E earnings.
We recommend Buy on the stock with a revised target price of ` 402 (12x FY14E
EPS).
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