Ipca Labs - Karvy

Revenues Outperform, Margins Lower due to
higher R & D
Revenues increased by 26.9%YoY to Rs8,056mn compared to Rs6,344mn in
Q1FY13. Operating margins are down by 110bps to 21.2% as against 22.3%
in Q1FY13 due to higher R & D expenses. Net Profit increased by 67%YoY
to Rs718mn in Q1FY14 in line with our expectation of Rs 702mn.
Revenue Details: Ipca’s Export formulation grew by 46.9% YoY to
Rs.3300mn higher than our expectations of Rs2,945mn. However, Domestic
formulation business increased by 12 % YoY to Rs2504mn in line with our
expectation of Rs2511mn. In Exports formulations, Branded promotion
revenues grew by 62%YoY to Rs730mn. Institutional business grew by
40%YoY to Rs839mn while Generic Business showed growth of 47%YoY to
Rs1,730mn. In APIs, Exports increased by 17%YoY to Rs1,666mn while
Domestic grew by 16%YoY to Rs456mn.
Margins Contract: Companyʹs EBITDA Margins stood at 21.2% (our
estimates 22.5%) in Q1FY14 lower than 22.3% reported in Q1FY13. Margins
were lower on account of high material cost due to product‐mix and higher R
& D expenses due to clinical trials conducted for a 505(b)2 product.
Companyʹs net profit stood at Rs718mn in Q1FY14, in line with our estimate
ofRs. 702mn.
Outlook and Valuation: We decrease our revenues by 0.4% to Rs34.7bn for
FY14E and by 1 % to Rs 41.6 bn for FY 15E mainly on account of downgrade
in Export API business. We marginally downgrade EBIDTA margins but our
EPS downgrade is 3.1 % for FY14E to Rs37.8 and by 1.1% for FY15E to Rs45.8.
We reduce our price target by 1 % to Rs687 based on 15x FY15E. Due to
limited upside (3%) we maintain our SELL recommendation on the stock.

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