IPCA Labs
Management meet update
�� Confident on solid growth foundation; Retain Buy
We recently hosted IPCA management for Investor meetings and came back
reassured of robust growth path driven by surge in formulations business. While
domestic formulation remains IPCA’s strong hold, export formulations to throw
positive surprises post facility approval by USFDA in near term.
Recent fieldforce additions to boost domestic business
IPCA has doubled its domestic formulations (38% of sales) fieldforce in the last
two years to 4000+ now. Much of the increment has been to strengthen
capabilities in Pain, CVS segment. We expect domestic formulation business to
sustain 20%+ growth rates over medium term as new fieldforce becomes
productive, also aiding margin expansion. Increasing penetration in tier 2/3 cities
& expanding coverage to 0.5mn doctors (of total 0.8mn in India) remains medium
term focus for the co. Company aims to have atleast 2-3 Rs1bn+ brands by 2012.
Indore SEZ USFDA approval remains key upside catalyst
IPCA’s US generic business faces capacity constraints currently and USFDA
approval for Indore SEZ remains key to support its growth plans. With no
revenues from the facility currently, the company is incurring unabsorbed fixed
overheads of Rs220mn p.a (inc. depreciation). IPCA can potentially grow its US
business multi-fold (to Rs3bn) from Rs750mn currently in next 3-4 years given
robust demand for approved products as well as new filings. Near-term facility
inspection and approval would pave way for improved profitability & visibility.
Stable business; Reasonable valuations
IPCA trades at 13.6x FY12E EPS, at 25-30% discount to the sector, which is
reasonable considering stable domestic business (45% of sales), growing export
formulations and strong financial health (D/E of 0.4x; RoE of 24-26%). We expect
valuation gap with peers to narrow on sustained growth (21% EPS CAGR).
