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August 1, 2011
Ipca Laboratories
Performance Highlights
Y/E March (` cr) Net sales Other income Operating profit Tax Adjusted net profit 1QFY2012 526 6 92 22 62 4QFY2011 474 11 94 14 59 % chg qoq 11.1 (45.7) (2.1) 58.6 5.4 1QFY2011 % chg yoy 415 4 68 12 39 27.0 53.2 35.2 75.0 58.8
ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 4,144 0.4 351/255 28477 2 18,314 5,517 IPCA.BO IPCA@IN
`330 `358
12 months
For 1QFY2012, Ipca Laboratories (Ipca) reported in-line results. The top line grew by 27.0% yoy to `526cr, in-line with our estimate for the quarter. Also, on the net profit front, the company came just in-line with expectations, registering growth of 58.8% yoy to `62.3cr. We recommend Accumulate on the stock. Results in-line with expectations: Ipca reported net sales of `526cr (`415cr), up 27%, above our estimates of `486cr. The company posted OPM of 17.4% (16.3%). Recurring profit came in at `61.7cr (`38.8cr), higher than our estimate of `64.8cr. Segment wise, for 1QFY2012, the overall formulations business grew by 36.2% to `395.6cr (`290.5cr), contributing 75.2% (70.0%) to the companys total revenue. The API business witnessed 5.2% growth during the quarter at `130.7cr (`124.3cr), contributing 24.8% (30.0%) to the total revenue. net profit for the year grew by 58.8% yoy to `62.3cr. Outlook and valuation: We expect net sales to post a 16.3% CAGR to `2,548cr and EPS to register a 14.8% CAGR to `27.5 over FY201113E, driven by the US and domestic markets and the API segment. At current levels, the stock is trading at 16.5x and 12.0x FY2012E and FY2013E earnings, respectively. We recommend Accumulate on the stock with a target price of `358. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EPS EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 46.1 31.9 10.4 11.6
3m (4.3) 8.5
FY2010 1,560 21.5 205 104.2 16.4 20.9 20.1 27.0 21.9 4.8 2.9 14.0
FY2011 1,883 20.7 262 27.5 20.9 19.0 15.8 22.8 19.9 3.9 2.5 13.0
FY2012E 2,207 17.2 251 (4.1) 20.0 20.5 16.5 21.7 21.9 3.3 2.1 10.1
FY2013E 2,548 15.4 346 37.8 27.5 21.5 12.0 24.9 23.3 2.7 1.8 8.3
% chg (yoy) 27.0 53.2 27.2 31.8 35.2 (115.8) 19.6 53.9 75.0 47.6 58.8
FY2011 1866 24 1890 1098 58.9 363 19.5 31 55 300 78 222 33 255 20.3
FY2010 1546 20 1566 905 58.5 325 21.0 32 46 266 63 203 6 209 16.7
% chg (yoy) 20.7 18.4 20.7 21.4 11.9 (3.8) 19.6 12.9 25.3 9.1 22.1
13 54 12 42 3 39 3.1
Revenue up by 27%, marginally higher than estimates: For 1QFY2012, Ipca reported net sales of `526cr (`415cr), up 27%, marginally higher than estimates of `486cr, led by strong growth of 36.2% yoy in the formulations space. The API segment reported single-digit growth of 5.2% yoy during the quarter. In the domestic domain, formulation sales grew by 12.3% yoy to `189cr (`168cr), whereas API sales grew by 13.1% yoy to `40.7cr (`36cr). On the export front, formulation sales strongly grew by 68.9% to `206.6cr (`122.3cr), driven by the generic business. The API segment reported growth of 2.0% to `90cr compared to `88.3cr in 1QFY2012.
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(` cr)
120 80 40 0
32
36
41
32
35
41
(` cr)
120 80 40 0
API
OPM inches higher: Ipcas gross margin came in at 60% (57.8%) for the quarter. OPM came in at 17.4% (16.3%). The companys staff cost increased by 27.1% yoy, while other expenditure increased by 32.6% yoy. This rise in other expenditure, which was higher than its sales, restricted the gross margin gains to percolate to the OPM.
August 1, 2011
(%)
16.0 13.0 10.0
Net profit lower than estimates: Ipca reported net profit of `61.7cr (`38.8cr), up 58.8% yoy, higher than our estimates of `64.8cr. The rise in operating profit along with the decline in interest expenses resulted in robust net profit growth during the quarter.
(` cr)
20
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Concall takeaways
Management has guided for 1820% growth for FY2012. It has also guided capex of `250cr in FY2012. Management has guided for 24% tax rate in FY2012, expecting utilisation of tax credits in the coming quarters. The company has hedged US$155mn (nearly half of its anticipated exports for FY2012) at around `48/US$. For Indore SEZ, the company remains hopeful of a plant inspection/approval by 2HFY2012, which should enable a sharp scale-up in the US business from FY2013.
August 1, 2011
Recommendation rationale
Domestic formulations business The cash cow: Ipca has been successful in changing its business focus to the high-margin chronic and lifestyle segments from the low-margin anti-malarial segment. The chronic and lifestyle segments, comprising CVS, anti-diabetics, pain-management, CNS and dermatology products, constitute more than 50% of its domestic formulation sales. Management has ramped up its field force significantly with additions of divisions in the domestic formulations segment, taking the total current strength to nearly 5,000 MRs. Exports to be the next growth avenue: On the formulations front, Ipca has been increasing its penetration in regulated markets, viz. Europe and US, by expanding the list of generic drugs backed by its own API. In the emerging and semi-regulated markets, Ipca plans to focus on building brands in the CVS, CNS, pain-management and anti-malarial segments along with tapping new geographies. On the API front, where it is among the low-cost producers, Ipca is aggressively pursuing supply tie-ups with pharma MNCs. Indore SEZ approval and tender business to enhance momentum: Ipca is awaiting USFDA approval for its Indore SEZ. Once approved, the facility would cater to the US generic market and could post sales of `300cr350cr. Further, Ipca has received approval from the WHO for its anti-malarial product, making the company eligible to participate in the global tender worth US$300mn along with three other players. Valuation: We expect the companys net sales to witness a 16.3% CAGR to `2,548cr and EPS to register a 14.8% CAGR to `27.5 over FY201113E, driven by the US and domestic markets and the API segment. At current levels, the stock is trading at 16.5x and 12.0x FY2012E and FY2013E earnings, respectively. We recommend Accumulate on the stock with a target price of `358.
August 1, 2011
5x
Source: Company, Angel Research
8x
12x
16x
Tgt Price (`) 278 1,937 1,053 377 1,920 133 658 358 593 373 -
Upside % PE (x) 65.1 (7.2) 19.9 21.8 20.4 52.6 56.2 8.6 29.6 84.1 8.8 23.2 17.1 16.4 16.6 7.5 26.5 6.4 12.0 15.4 5.4 12.6 22.5
FY2013E EV/Sales (x) 1.2 2.9 2.7 3.0 2.9 1.3 6.1 0.8 1.8 2.5 1.3 1.8 5.6 EV/EBITDA (x) 6.7 18.8 13.5 14.1 11.4 7.3 17.3 4.9 8.3 12.8 5.8 7.8 18.0
FY11-13E CAGR in EPS (%) 29.5 15.6 21.6 25.2 22.7 8.6 14.6 25.8 14.8 24.0 29.6 31.8 15.8
FY2013E RoCE (%) 13.8 15.8 28.3 17.0 22.0 7.4 41.0 17.6 23.3 23.9 11.7 26.8 20.2 ROE (%) 19.0 17.1 35.2 18.5 25.2 9.2 30.7 19.3 24.9 30.8 23.4 25.9 20.4
Source: Company, Angel Research; * December ending; Recurring EPS taken for calculations
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Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.6 2.0 6.6 0.7 1.8 6.8 0.5 1.4 10.6 0.5 1.4 9.7 0.4 1.0 9.8 0.3 0.8 12.0 2.0 84 74 28 126 1.9 81 85 31 134 1.9 80 85 26 139 1.9 81 82 25 142 1.9 79 81 31 135 1.9 41 43 16 130 15.3 17.3 25.6 20.1 21.7 29.0 21.9 22.6 27.0 19.9 20.5 22.8 21.9 23.0 21.7 23.3 24.9 24.9 12.9 79.6 1.3 12.8 5.5 0.5 16.7 16.9 80.3 1.2 16.4 6.3 0.6 23.0 17.9 76.4 1.2 17.0 4.4 0.6 24.6 16.1 77.0 1.2 15.5 4.9 0.5 20.9 17.7 67.7 1.3 15.3 5.1 0.4 19.7 18.8 75.1 1.3 18.5 5.6 0.3 22.6 10.8 10.8 13.4 1.6 47.0 8.1 8.1 11.2 2.2 50.5 16.4 16.4 20.1 2.8 69.1 20.9 20.9 25.3 4.2 83.7 20.0 20.0 24.9 4.0 100.1 27.5 27.5 33.1 5.5 121.2 30.4 24.5 7.0 0.5 4.3 26.7 4.5 40.9 29.4 6.5 0.7 3.6 17.8 4.0 20.1 16.4 4.8 0.8 2.9 14.0 3.3 15.8 13.0 3.9 1.3 2.5 13.0 2.8 16.5 13.3 3.3 1.2 2.1 10.1 2.4 12.0 10.0 2.7 1.7 1.8 8.3 2.1 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Ipca Laboratories No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
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