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MOSL: IPCA LABORATORIES (Buy)-Promising outlook for the next 2-3 years

Ipca Laboratories: Promising outlook for the next 2-3 years; Branded generics/API/Anti-Malaria to drive earnings delta

(IPCA IN, Mkt Cap USD1.7b, CMP INR963, TP INR1145, 19% Upside, Buy)

 

• Sustained outperformance in branded domestic formulation (DF) space coupled with enhanced opportunities in the API segment and additional business from institutional Anti-Malaria segment shows that IPCA has enough headroom to be on a strong earnings trajectory over the next 2-3 years.
• We expect IPCA to end FY19 with earnings similar to that in FY14 (pre-import alert from USFDA); despite the USFDA issues being unresolved. This implies healthy performance in the branded generics segment.
• We raise our EPS estimate by 6%/7% to INR45.3/INR54.4 for FY20/21. We continue to value IPCA at 21x 12M forward earnings to arrive at a price target of INR1,145 (from INR970 earlier). Re-iterate BUY. 

Enhanced medical representative (MR) efforts to drive volumes in DF

• IPCA is well placed to outperform the industry in the branded domestic formulation (DF) market (46% of sales), led by superior execution in Pain, Derma and Urology therapies. IPCA delivered 17% YoY growth in this segment for 9MFY19, compared to industry growth of 9.5-10% during the same period. Though secondary sales data from AIOCD and brand analysis indicates that molecules in IPCA’s Pain segment are well-established in terms of prescription, it is mainly the marketing effort of IPCA that has resulted in a strong brand recall among doctors. The share of the Pain segment within DF has increased from 30% in FY12 to ~45% at end-9MFY19. We expect IPCA to perform well in Derma and Urology on the back of introduction of new combinations and partly on a low base. Also, the share of Derma and Urology segment within DF has increased from 4% in FY12 to ~9% at end-9MFY19. On an overall basis, we expect IPCA to deliver 16% sales CAGR at INR22b over FY19-21E.