MOSL: IPCA LABORATORIES (Upgrade to Buy)-Strong results; margins recovery sustainable
Ipca Laboratories: Strong results; margins recovery sustainable; Upgrade to Buy
(IPCA IN, Mkt Cap USD1.2b, CMP INR596, TP INR750, 26% Upside, Upgrade to Buy)
- IPCA’s 3QFY18 revenue grew 13% YoY to INR8.4b (est. of INR8.3b). Gross margin stood at 65.8% (v/s 66.8% in 3QFY17). EBITDA stood at INR1.6b, with the margin at 18.8% in 3QFY18 v/s 17.2% in 2QFY18 and 14.9% in 3QFY17. Notably, the margin improvement came despite high remediation cost of ~INR240m. PAT stood at INR1.05b (more than doubled YoY) in the quarter.
- Multiple triggers in place to drive margins: IPCA expects at least 200-250bp EBITDA margin improvement (~18-18.5 in FY19E v/s a normalized margin of 16-16.5% in FY18E). This will be primarily driven by 1) India business growth of ~14-16%, 2) a significant reduction in remediation cost from ~INR500-550m in FY18E (~1.6% of sales) to ~INR40-70m in FY19E, 3) a reduction in manpower by ~600 (~200 in marketing and ~400 in manufacturing), 4) commencement of the WHO tender business from FY19E, and 5) other cost rationalization efforts to lower SG&A and other expenses. We expect further margin improvement in FY20 on the back of ramp-up of the US business and approval of injectables for the tender business.
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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