IPCA Laboratories Ltd (IPCA): 1QFY20 API business driving the business growth

Dated: 19th August 2019

Quarterly Performance:

1. Net Sales for the quarter stood at Rs 10,110 mn a growth of 18% YoY. The growth was driven by API (Active Pharmaceutical Ingredient) revenue growth of 37% YoY. The Domestic API grew by 9% while exports grew by 47% YoY. The Sartans (used in hypertension treatment) sales helped in the growth for the APIs. India finished dosage business for the quarter grew 13% YoY while the International finished dosage business grew 12% YoY.
2. The EBITDA for the quarter stood at Rs 1,950 mn, a growth of 40% YoY. The growth at the operating level includes a reduction in the remediation cost in the quarter compared to last year and a reduction in the R&D cost. The remediation cost for the quarter stood at Rs 60 mn while the R&D cost was close to 2.5% of the total sales.
3. The EBITDA margins for the quarter were at 19.3% as against 16.3% in 1QFY19.
4. The PAT for the quarter was at Rs 1,320 mn showing a growth of 101% YoY.

Management Commentary:

1. IPCA management expects the domestic business to remain stable and deliver revenue growth of 13-14% in FY20E.
2. The API business was led by an increase in the sales of Sartans. The Company has seen strong demand for Valsartan and Losartan in the export markets.
3. The Institutional business declined 28% YoY in this quarter because of the slow offtake of the Global Fund business. The Company has received an order of Rs 280 mn in this quarter. They expect the order for the full year of FY20E to be around Rs 900 mn. The Institutional business revenues are expected to be in the range of Rs 2,250-2,500 mn for the full year FY20E which includes Global Fund order.
4. The USFDA issue for the 3 plants (Pitampura, Piparia & Ratlam) remains unchanged as IPCA expects FDA to visit these plants.
5. The remediation cost for the full year of FY20E is expected to be less than Rs 100 mn.
6. The Capex for the quarter was around Rs 600 mn and is expected to be Rs 2,200-2,300 mn for FY20E. the CAPEX would majorly include debottlenecking of the capacities.
7. The tax rate for the whole year is expected to be 20% as it is a MAT (Minimum Alternate Tax) company.

Consensus Estimate (Source: market screener website)

• The closing price of IPCA Labs Ltd was Rs 951/- as of 19-August-19. It trades at 22x/17x/ 16x the consensus EPS for FY20E /21E/FY22E of Rs 43.9/ 54.7/ 60.0 respectively.

Consensus target price of Rs 1,021/- implies a P/E of 19x on March-FY21E year ended.