IPCA Laboratories - Near Term Challenging; Result Update Q2FY15 :: Edelweiss, PDF link

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IPCA Laboratories’ (Ipca) Q2FY15 PAT missed estimates by a big margin, primarily due to lower revenues (weak branded exports and institutional businesses). In Ipca’s opinion, the observations cited in the recently issued Form 483 for the Indore facility inspection are not as serious as the Ratlam one. We prune our estimates in accordance to Ipca’s FY15 guidance - revenue growth of ~5-6% (earlier 12%) and EBITDA margin of 20-21% (earlier 24%).

FY15 guidance muted

Revenue (down 8% YoY) was impacted by muted exports (institutional and branded), while India maintained strong momentum (up 19% YoY). EBITDA margin at 17.3% came in 620bps below our estimates on lower revenues, due to suboptimal utilisation of API capacity. EBITDA declined 38% and resulted in 51% miss in PAT. Ipca has been facing challenges in the CIS countries due to the geopolitical turmoil there, which may continue. Owing to lower revenue this quarter and pricing pressure, the company has lowered its institutional business guidance to INR3.7-4.0bn (earlier INR4.6bn). FY15 guidance has been revised downwards to factor in weaker exports outlook.

On brighter side, Indore 483 less worrisome than Ratlam one

Ipca stated that Form 483 observations made during the recent USFDA inspection at its Indore plant are less severe than those identified at the Ratlam plant. The company will seek a meeting with the USFDA on further plan of action after completing remediation activities by Dec’14. While observations highlighted at the Indore plant relate to legacy issues and steps have already been taken to remediate these before the surprise FDA inspection (Oct’14). According to Ipca, the Indore plant does not warrant voluntary halt of production for remediation like in the case of Ratlam and it continues to be on the lookout for alternate API suppliers for supporting the Indore formulations plant.

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https://www.edelweiss.in/research/IPCA-Laboratories--Near-Term-Challenging;-Result-Update-Q2FY15/27538.html