This Mid Cap Pharma Stock Has 17% Upside In 1 Year, “BUY” Says ICICI Direct

Ipca Laboratories Limited received a buy call from ICICIdirect, one of Indias top retail brokers, with a target price of Rs. 2490. The brokerage had placed a buy call on the stock at a market price of Rs 2121, estimating a gain of 17 percent in a year. On the National Stock Exchange (NSE), however, the stock is now trading at a market price of Rs 2,089 per share. Ipca Laboratories Limited is a global pharmaceutical company and according to IQVIA May 2020, Ipca Laboratories Limited has four formulations ranked in the top 300 brands in the Indian pharmaceutical category. According to the brokerage, the companys Revenues grew 13.5% YoY to Rs 1544.4 crore (I-direct estimate: Rs 1591crore). Strong YoY growth of 30.4% in domestic formulations to Rs 698.2 crore (I-direct estimate: Rs 621.2 crore) was offset by 3.7% YoY de-growth in export formulations to Rs 351 crore (I-direct estimate: Rs 404.5 crore) along with API sales decline of 5.6% YoY to Rs 359.7 crore (I-direct estimate: Rs 430.8 crore). ICICI Direct has said in its research report that the companys EBITDA margins declined 279 bps YoY to 23.7% (I-direct estimates of 24.4%) due to lower gross margins (down 272 bps YoY). Subsequently, EBITDA grew 1.5% YoY to Rs 365.6 crore (I-direct estimate: Rs 388.9 crore). Delta vis-à-vis I-direct estimates were mainly due to lower than expected topline performance and margins. PAT de-grew 6.3% YoY to Rs 250.2 crore (I-direct estimate: Rs 289.6 crore). Delta vis-à-vis EBITDA was mainly due to higher tax rate being partially offset by higher other income.Advertisement Incremental growth in other therapies (excluding malaria), especially non-communicable diseases like pain management, cardio-diabetology, etc, the overall portfolio is poised for steady growth.Sustained traction from branded and generics exports sales with a revival in EU is likely to mitigate the US void.Commissioning of Devas plant and additional capacities from Ratlam.US traction will take longer due to USFDA import alerts for the Ratlam facility that is the only API source for Silvassa and Pithampur formulations. Domestic formulations grew 30.4% YoY: Segment wise YoY growth: Pain-management: 33%, cardio & antidiabetic: 13%, anti-bacterial: 37%, dermatology: 65%, antimalarial: 75%, cough & cold: 95%.Segment wise percentage of revenue: Pain management: 47%, cardio & anti-diabetic: 17%, anti-bacterial: 8%, dermatology: 5%, anti-malarial: 7%, cough & cold: 4%.Gross margins were affected by - Rise in raw material cost (in some cases two to threefold). The management has not indicated at any respite in inflated raw material cost and rise in packaging, logistic and power cost.The management guided that Q3 would remain impacted for APIs with a possible recovery from Q4.The management maintained its guidance for domestic business in FY22 while withholding the guidance of ~ 25% FY22 EBITDA margins.Devas is expected to be operational in FY23 while the Ratlam facility will be operational by Q3FY22. API capacity will increase by 20% post-completion of both projects. ICICI Direct in its research report has said that Ipcas share price has grown by ~4.3x over the past five years (from ~Rs 488 in June 2016 to ~Rs 2121 levels in November 2021). Maintain BUY due to good traction in domestic formulations and sustainable growth amid some margin pressure in the medium term. Quarterly performance gyrations notwithstanding, the company remains a decent player with a judicious mix of strong domestic franchise and a spread out exports model with a healthy balance sheet. Going ahead, with firm growth tempo in domestic formulations, good prospects both for API exports, formulation exports, we expect further improvement in financial parameters ICICI Direct claims. We value Ipca at Rs 2490 i.e. 26x P/E on FY23E EPS the brokerage has said. The above stock was picked from the brokerage report of ICICI Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.