IPCA Laboratories Ltd - Buy at CMP and add on declines :: HDFC Sec

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IPCA is a fully-integrated Indian pharmaceutical company manufacturing over 350 formulations and 80 APIs for various therapeutic segments. IPCA is a therapy leader in India for anti-malarials with a market-share of over 34% with a fast expanding presence in the international market as well. Triggers  APIs and Formulations – domestic growth drivers  International business not only helps in diversifying geographical risks but also expand IPCA’s presence  R&D spend rising, which would help future growth.  Manufacturing Facilities – excess capacity available and new set up to drive volumes in future  Valuation – main trigger Risks/Concerns  Foreign exchange fluctuation as significant revenue from exports  Any delay in approval from regulators for its products or its facilities. Any regulatory action on plant approvals.  New and stringent rules and regulations formed by the domestic authority in India can affect the domestic formulation business. Conclusion and Recommendation Instead of waiting on the sidelines till the facilities are re-approved, we feel investors can start accumulating the stock. With product approvals already in place and capacity bottlenecks resolved through the Indore SEZ, the likely resolution of FDA issues at Ratlam may lead to re-rating of the stock although its timing is uncertain. At the current market price (of Rs 754) the company is trading at 22.2x its FY16E consolidated EPS of Rs 33.9 and 18.4x its FY17E consolidated EPS of Rs 40.9. Investors could buy the stock at the CMP and add on declines to Rs.670-690 band (16.4-16.9x FY17E EPS) for sequential price targets of Rs 832 and Rs 893 (20.3-21.8x FY17E EPS) for the next 3-4 quarters.

http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011835