MOSL: IPCA LABORATORIES (Neutral)-Weak quarter-recovery expected in coming quarters

​IPCA Laboratories: Weak quarter; recovery expected in coming quarters

(IPCA IN, Mkt Cap USD1.1b, CMP INR412, TP INR430, 4% Upside, Neutral)

• Revenue declined 15.3% YoY (est. of -7%) to INR7.1b. EBITDA declined significantly by 83% YoY to INR215m, as the company posted one of the lowest EBITDA margin in the last 7-8 quarters of 3%. The miss in revenue and margin is primarily attributed to GST impact on the domestic business. Weak operating performance led to net loss of INR202m, as against net profit of INR476m in 1QFY17.
• Full-year guidance: Management expects FY18 revenue to grow at ~8-10% YoY (est. of ~5%). The company expects an impact of ~INR150m on EBITDTA due to GST. R&D cost is expected to be in the current range of ~INR700m/quarter.
• GST implementation impacted domestic growth; recovery expected in 2Q: India formulation sales declined ~17% YoY to ~INR3b. If not for channel de-stocking ahead of GST rollout, India business would have grown at ~10%. Apart from this, IPCA lost ~INR200m of sales v/s 1QFY17 due to lower Malaria-related product sales. Management expects growth to bounce back to low-to-mid-teens in the coming quarters post channel re-filling. However, there will be a one-time impact on margins due to higher indirect tax rate post GST implementation. According to management, there was a loss of 7-8 days of sales in the export business because GST upgradation.