IPCA Labs: 1QFY19 Result - International Sales Decline but EBITDA Margins Improve

IPCA: Annual Report FY18: Normal Service to Resume

IPCA 4QFY18 Results Confirm Recovery Story

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<ul class="">
<li>
<a href="https://www.smartkarma.com/entities/15774" target="_blank" data-smartkarma-citation="entities:15774:1">Ipca Laboratories (IPCA IN)</a> 2QFY19 PAT of Rs 1,197 mn beat our estimates of Rs 1,023 mn. EBITDA margins, excluding forex loss, stood at 20.4%, 360 bps higher than our estimates. Expansion in EBITDA margins was due to an increase in customer pricing to reflect the rise of the raw material values and lower SGA costs.</li>
<li>The USFDA approval process underway and information required by the USFDA is being compiled and submitted.</li>
<li>Over FY18-21E, we expect revenue and PAT to grow at CAGR 16% and 45% respectively. We expect EBITDA margin expand from 13.7% in FY18 to ~21% in FY20E &amp; FY21E. We expect a) the shift from low margin anti-malarial business to high margin chronic segments in India, b) the revival of the generic business in Canada and Europe and c) the reduction of the remediation cost from Rs 1,000 mn in FY19E, to Rs 200 mn in FY20E &amp; then no remediation cost thereafter in FY21E, will support the margin expansion.</li>
<li>We have revised our EPS estimates upwards by 16% for FY20E. EPS for FY20E &amp; FY21E stand at Rs 47.9/- &amp; Rs. 56.3/- respectively. We maintain our PE target multiple at 20x and apply it to our EPS estimate of Rs. 53/- for the year ending September- 20E to arrive at the fair value estimate of Rs 1,050/- for the next 12 months.</li>
</ul>
<table class="table table-striped">
<tbody>
<tr>
<td>
Particulars (Rs mn)
</td>
<td style="text-align: right;">
FY18
</td>
<td style="text-align: right;">
FY19E
</td>
<td style="text-align: right;">
FY20E
</td>
<td style="text-align: right;">
FY21E
</td>
</tr>
<tr>
<td>
Revenue
</td>
<td style="text-align: right;">
32,192
</td>
<td style="text-align: right;">
37,202
</td>
<td style="text-align: right;">
44,399
</td>
<td style="text-align: right;">
49,891
</td>
</tr>
<tr>
<td>
PAT
</td>
<td style="text-align: right;">
2,331
</td>
<td style="text-align: right;">
3,760
</td>
<td style="text-align: right;">
6,045
</td>
<td style="text-align: right;">
7,106
</td>
</tr>
<tr>
<td>
EPS (Rs.)
</td>
<td style="text-align: right;">
18.5
</td>
<td style="text-align: right;">
29.8
</td>
<td style="text-align: right;">
47.9
</td>
<td style="text-align: right;">
56.3
</td>
</tr>
<tr>
<td>
PE (x)
</td>
<td style="text-align: right;">
42.7
</td>
<td style="text-align: right;">
26.4
</td>
<td style="text-align: right;">
16.5
</td>
<td style="text-align: right;">
14.0
</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source- IPCA Labs Annual Report FY18, Trivikram Consultants Research as on 28/11/2018</div>
<div class="content-remarks">
Note: E= Estimates, mn= millions
</div>



Ipca Laboratories (IPCA IN) 2QFY19 PAT of Rs 1,197 mn beat our estimates of Rs 1,023 mn. EBITDA margins, excluding forex loss, stood at 20.4%, 360 bps higher than our estimates. Expansion in EBITDA margins was due to an increase in customer pricing to reflect the rise of the raw material values and lower SGA costs.
The USFDA approval process underway and information required by the USFDA is being compiled and submitted.
Over FY18-21E, we expect revenue and PAT to grow at CAGR 16% and 45% respectively. We expect EBITDA margin expand from 13.7% in FY18 to ~21% in FY20E &amp; FY21E. We expect a) the shift from low margin anti-malarial business to high margin chronic segments in India, b) the revival of the generic business in Canada and Europe and c) the reduction of the remediation cost from Rs 1,000 mn in FY19E, to Rs 200 mn in FY20E &amp; then no remediation cost thereafter in FY21E, will support the margin expansion.
We have revised our EPS estimates upwards by 16% for FY20E. EPS for FY20E &amp; FY21E stand at Rs 47.9/- &amp; Rs. 56.3/- respectively. We maintain our PE target multiple at 20x and apply it to our EPS estimate of Rs. 53/- for the year ending September- 20E to arrive at the fair value estimate of Rs 1,050/- for the next 12 months.





Particulars (Rs mn)


FY18


FY19E


FY20E


FY21E




Revenue


32,192


37,202


44,399


49,891




PAT


2,331


3,760


6,045


7,106




EPS (Rs.)


18.5


29.8


47.9


56.3




PE (x)


42.7


26.4


16.5


14.0




Source- IPCA Labs Annual Report FY18, Trivikram Consultants Research as on 28/11/2018

Note: E= Estimates, mn= millions


IPCA Laboratories- 2QFY19 Results – Growing While Awaiting USFDA Approvals