Ipca Labs' outlook remains intact with India business on strong footing

Ipca Laboratories’ strong performance for the December quarter (third quarter, or Q3) pushed its stock to a fresh all-time high, before it closed 7 per cent higher on Thursday. Given its Q3 performance and outlook, the stock, which has nearly doubled in one year, could see more upside.

Continued focus on brands is driving domestic formulations, while exports (branded, generics, and institutional business) continue to complement, even as US supplies remain constrained due to unresolved Food and Drug Administration (FDA) issues.

The company’s strength lies in its domestic formulations, which contributed 43 per cent to revenue and grew 15 per cent in Q3, ahead of the Indian pharma market’s growth of 9-10 per cent.

The strong pain management portfolio (half of India sales) grew by 19 per cent in Q3 and 21 per cent in the first nine months of 2019-20, and is providing momentum.

Driven by Ipca’s efforts to consistently engage orthopaedic surgeons and dentists through new clinical programmes, strong and growing field-force and productivity improvement, its pain brands should maintain leadership. Other segments such as cardiovascular, antibiotics, anti-malarial, and dermatology, too, continue to complement, with 17-34 per cent growth in Q3.

Formulation export income (31 per cent of revenue), too, grew by a robust 26 per cent year-on-year (YoY), while generics growth of 39 per cent was driven by European business that grew by over 30 per cent.

Institutional supplies business at ~48 crore grew 23 per cent. Ipca expects to clock in annual revenue of ~175-180 crore this year, rising to ~250 crore in 2020-21.

Lastly, active pharmaceutical ingredient (API; a fourth of revenue) sales, too, grew by 24 per cent YoY and the trend should remain robust. API exports continue to be aided by incremental sales from anti-hypertensive Sartan APIs.

Ipca is the world’s largest manufacturer of Losartan. Its Ratlam facility touched a utilisation of 100 per cent (despite no shipments to the US), say analysts. Given the expansion in API capacity, higher volumes should drive growth even if intermediate prices remain flat.

Analysts say strong API capabilities are at the core of Ipca’s diversified export model, a major competitive advantage amid growing cost pressures in global generics.

Even domestic formulations, with backward integration, should see firm profitability and limit any impact of shortage of intermediates if there are supply disruptions due to the novel coronavirus.

Overall, Q3 revenues at ~1,213 crore and operating profit of ~223 crore were ahead of consensus estimate of ~1,117 crore and ~188 crore, respectively.

Analysts at India Nivesh said they expect Ipca’s earnings to grow 29 per cent annually till 2021-22, without factoring in FDA resolution of its three manufacturing facilities.

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