Prabhudas Lilladher has given Accumulate recommendation for Ipca Laboratories with a target price of Rs. 2163 in its research report issued on Jun 01, 2021

Prabhudas Lilladher’s research report on Ipca Laboratories

We increase our earnings estimates by 9.7%/7.7% for FY22E/23E while revenue cut by 3.3%/3.1% in FY22E/FY23E. Expansion in EBITDA margins by 170bps to 25.2% (management guidance of 25.0-25.5%) due to reduction in overhead costs along with lower tax regime were the key reasons for earnings upgrade. 4QFY21 revenues missed our estimates, mainly due to weak performance of India formulations, lower CQ/HCQS sales and steep decline in EU generic and malaria-tender business. With one-off benefits of Rs3.7bn from sales of CQ/HCQS in FY21, IPCA lowered its sales growth guidance of 9-10% in FY22E with 1) India formulations at 16-18%, 2) API at 5-10%, 3) Export generics at 5% 4) global tender business at 5% while 5) branded generics at 13-15%. While our assumptions of growth mostly discounted the disadvantages of the one-off sales of Covid-19 (CQ/HCQS) products, we factored more overhead savings due to pandemic and that resulted in better EBITDAM in FY22E, which concur with the management guidance. Its guided for better control on staff costs with focused recruitment in very few divisions and lower promotion and incentive costs.

Outlook

While we maintain ‘Accumulate’ rating, we reduce our assigned PE to 25x (from 27x) to derive our new TP of Rs Rs2,163 (earlier Rs2,257) due to Covid-related benefits are played out.