MOSL: IPCA LABORATORIES (Buy)-Benefits from improved op. leverage-robust growth in branded generics/API
Ipca Laboratories: Benefits from improved op. leverage; robust growth in branded generics/API
(IPCA IN, Mkt Cap USD1.4b, CMP INR759, TP INR970, 28% Upside, Buy)
- Revenue growth driven by branded generics/API: IPCA’s revenue increased ~10% YoY to INR9.5b (our estimate: INR9.8b), led by growth in the domestic formulation (DF; +10% YoY to INR4.2b; 45% of sales), API (+20% YoY to INR2.3b; 25% of sales) and branded generics (+32% YoY to INR1b; 11% of sales) segments. Gross margin (GM) expanded 260bp YoY to 68.4%, driven by the higher share of international branded generics, API sales and currency tailwinds. IPCA had forex gain of INR285m and penalty of INR70m due to failure of supply. Adjusting for the same, EBITDA margin expanded by ~220bp YoY to 22.2%, aided by GM expansion and lower employee cost (-60bp YoY), partly offset by higher other expense (+295bp YoY). Adj. PAT came in at INR1.3b (our estimate: INR1.0b). For 9MFY19, sales/EBITDA/PAT grew 15%/59%/82% YoY to INR28b/INR5.4b/INR3.7b.
- Earnings call takeaways: (1) Regulatory remediation-related cost stood at INR135m (INR385m for 9MFY19); IPCA guided for INR600m for FY19 and a considerable reduction FY20 onward. (2) Institutional business was down due to delayed shipment. However, IPCA maintained its FY19 sales guidance of INR1.8b for the business. (3) Prices of raw materials to be imported from China have stabilized at higher levels and supply has smoothened. (4) IPCA maintained its FY19 growth guidance of 14-15% in DF.
Ipca Laboratories is engaged in the manufacture, sale and export of pharmaceuticals and pharmaceutical formulations in the form of tablets and capsules, orals and liquids, injectables, basic drugs and intermediates, and psyllium husk. As of Mar 31 2003, Co. operated 4 manufacturing facilities in Ratlam, Indore, Kandla and Athal. Co. also maintained a corporate office, an international division, and a research and development center in Mumbai.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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