We initiate coverage on IPCA with a BUY and a TP of Rs 880. We like IPCA
due to (a) sharp ramp-up in US sales (post Indore SEZ contributing from
1QFY15), (b) superior earnings growth (25% EPS CAGR vs. 20% for peers)
led by margin expansion & (c) attractive valuations (trades at 20% discount
to mid-sized peers). We expect re-rating led by earnings upgrades on faster
domestic growth (from H2) & improved biz. mix driving margin surprise. Our
TP (16x Dec’15E EPS, a 20% discount to sector) implies a 19% upside.
Formulations-led revenue growth: We forecast 18% sales CAGR over FY13-FY16E
led by both domestic (16% CAGR, 32% of sales) and export (23% CAGR, 44% of
sales) formulations. A ramp-up in US generics (aided by Indore SEZ contribution),
sustained anti-malarial tender wins and new launches in branded markets brighten
export growth prospects. Higher captive utilisation would limit growth in the lowermargin API biz (27% of sales) to 15%, thereby improving the overall revenue mix.
Domestic growth to rebound on improving productivity: Post one-time impact of
the new pricing policy, IPCA’s domestic growth to bounce-back (to 16% from11% in
1H) over FY13-FY16 on (a) higher thrust on chronic segmentslike cardiac, pain,
diabetes &(b) improving productivity of recently added field-force (25% of total).
Margin outlook firm: IPCA’s EBITDA margins should to improve to ~24% (22.2% in
FY13) on (a) rising contribution of high-margin US sales, (b) higher-than-expected
margin-accretive anti-malarial tender supplies (14% of sales), and (c) belowexpected impact of NLEM-listed products in the domestic market. We thus expect a
21% EBITDA CAGR over FY13-FY16E (faster than 18% sales growth in this period).
Earnings momentum to drive upsides: IPCA’s valuation discount of 20% to mid-cap
peers would narrow due to (a)rising growth visibility (25% EPS CAGR), (b)improving
RoEs (26% in FY16E vs. 23% now) and (c) lower gearing (0.2x in FY16E vs. 0.4x now).��
No comments:
Post a Comment