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MOSL: IPCA LABORATORIES (Buy)-Record quarterly PAT led by strong execution

IPCA LABORATORIES: Record quarterly PAT led by strong execution

(IPCA IN, Mkt Cap USD2.5b, CMP INR1420, TP INR1660, 17% Upside, Buy)

 

DF/API/International generics – key drivers for growth

• IPCA is one of the companies with high exposure to domestic formulation (DF; 40% of sales), a favorable opportunity in API (23% of sales) and better traction in international generics.
• We raise our EPS estimate by 10%/10.5%/11.4% for FY20/21/22 and also increase P/E multiple to 22x (prior: 20x) to factor in better-than-industry growth in DF, a revival in int. generics and sustained momentum in API. Maintain Buy. 

A strong beat on earnings

• Sales increased 20.5% YoY to INR12.1b (our estimate: INR10.9b), led by strong growth in exports (generics) and API.
• Exports (generics) grew 39% YoY to INR2b (16% of sales), API sales were up 24% YoY at INR3b (23% of sales), while DF sales increased 15% YoY to INR4.9b (40% of sales).
• Exports (branded + institutional) grew 12% YoY to INR1.6b (13% of sales).
• Gross margin shrank 120bp YoY to 65.1% due to a change in product mix (higher share of API sales).
• EBITDA margin contracted 70bp YoY due to a lower gross margin and higher employee cost (+60bp YoY), offsetting the benefit of lower other expenses (-120bp YoY).
• EBITDA was up 17% YoY at INR2.7b (our estimate: INR2.2b).
• PAT increased 25.4% YoY to INR2b (our estimate: INR1.5b) due to a lower tax rate (15.6% v/s 19% in 3QFY19).