ipca laboratories

8/6/2019 Ipca Laboratories

1/12

Please refer to important disclosures at the end of this report 1

Y/E March ( ` cr) 1QFY2012 4QFY2011 % chg qoq 1QFY2011 % chg yoy

Net sales 526 474 11.1 415 27.0

Other income 6 11 (45.7) 4 53.2

Operating profit 92 94 (2.1) 68 35.2

Tax 22 14 58.6 12 75.0

Adjusted net profit 62 59 5.4 39 58.8

Source: Company, Angel Research

For 1QFY2012, Ipca Laboratories (Ipca) reported in-line results. The top line

grew by 27.0% yoy to ` 526cr, in-line with our estimate for the quarter. Also, onthe net profit front, the company came just in-line with expectations, registeringgrowth of 58.8% yoy to ` 62.3cr. We recommend Accumulate on the stock.

Results in-line with expectations : Ipca reported net sales of ` 526cr ( ` 415cr), up27%, above our estimates of ` 486cr. The company posted OPM of 17.4%(16.3%). Recurring profit came in at ` 61.7cr ( ` 38.8cr), higher than our estimateof ` 64.8cr. Segment wise, for 1QFY2012, the overall formulations business grewby 36.2% to ` 395.6cr ( ` 290.5cr), contributing 75.2% (70.0%) to the companystotal revenue. The API business witnessed 5.2% growth during the quarter at

` 130.7cr ( ` 124.3cr), contributing 24.8% (30.0%) to the total revenue. net profitfor the year grew by 58.8% yoy to ` 62.3cr.

Outlook and valuation : We expect net sales to post a 16.3% CAGR to ` 2,548crand EPS to register a 14.8% CAGR to ` 27.5 over FY201113E, driven by the USand domestic markets and the API segment. At current levels, the stock is tradingat 16.5x and 12.0x FY2012E and FY2013E earnings, respectively.

We recommend Accumulate on the stock with a target price of ` 358.

Key financials (Consolidated) Y/E March ( ` cr) FY2010 FY2011 FY2012E FY2013E

Net sales 1,560 1,883 2,207 2,548% chg 21.5 20.7 17.2 15.4

Net profit 205 262 251 346

% chg 104.2 27.5 (4.1) 37.8

EPS 16.4 20.9 20.0 27.5

EBITDA margin (%) 20.9 19.0 20.5 21.5

P/E (x) 20.1 15.8 16.5 12.0

RoE (%) 27.0 22.8 21.7 24.9

RoCE (%) 21.9 19.9 21.9 23.3

P/BV (x) 4.8 3.9 3.3 2.7

EV/Sales (x) 2.9 2.5 2.1 1.8

EV/EBITDA (x) 14.0 13.0 10.1 8.3 Source: Company, Angel Research

ACCUMULATECMP ` 330Target Price ` 358Investment Period 12 months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 46.1

MF / Banks / Indian Fls 31.9

FII / NRIs / OCBs 10.4

Indian Public / Others 11.6

Abs. (%) 3m 1yr 3yr

Sensex (4.3) 2.5 25.0

Ipca 8.5 17.8 204.0

Face Value ( ` )

BSE Sensex

Nifty

Reuters Code

4,144

0.4

351/255

28477

Pharmaceutical

Avg. Daily Volume

Market Cap ( ` cr)

Beta

52 Week High / Low

2

18,314

5,517

IPCA.BO

IPCA@IN

Sarabjit Kour Nangra+91 22 39357800 Ext: [email protected]

Ipca Laboratories

Performance Highlights

1QFY2012 Result Update | Pharmaceutical August 1, 2011


2/12

Ipca Laboratories | 1QFY2012 Result Update

August 1, 2011 2

Exhibit 1: 1QFY2012 Standalone performanceY/E March ( ` cr) 1QFY2012 4QFY2011 % chg (qoq) 1QFY2011 % chg (yoy) FY2011 FY2010 % chg (yoy)

Net sales 526 474 11.1 415 27.0 1866 1546 20.7Other income 6 11 (45.7) 4 53.2 24 20 18.4Total income 533 485 9.8 419 27.2 1890 1566 20.7Gross profit 316 277 14.2 240 31.8 1098 905 21.4Gross margin (%) 60.0 58.4 57.8 58.9 58.5Operating profit 92 94 (2.1) 68 35.2 363 325 11.9Operating margin (%) 17.4 19.8 16.3 19.5 21.0Interest -1 14 5 (115.8) 31 32 (3.8)Depreciation 15 14 8.6 13 19.6 55 46 19.6PBT 83 76 8.9 54 53.9 300 266 12.9Provision for taxation 22 14 58.6 12 75.0 78 63 25.3

PAT before Extra-ordinary item 62 59 5.4 42 47.6 222 203 9.1Less: Exceptional Items 0 0 - 3 - 33 6PAT after Exceptional Items 62 59 5.4 39 58.8 255 209 22.1EPS ( ) 4.9 4.7 3.1 20.3 16.7


Exhibit 2: 1QFY2012 Actual vs. Angel estimates (` cr) Actual Estimates Variation

Net sales 526 486 8.3

Other income 6 5 30.9

Operating profit 92 101 (9.3)

Interest (1) 6 (112.4)

Tax 22 19 11.1

Net profit 62 65 (4.9)


Revenue up by 27%, marginally higher than estimates: For 1QFY2012, Ipcareported net sales of ` 526cr ( ` 415cr), up 27%, marginally higher than estimates of ` 486cr, led by strong growth of 36.2% yoy in the formulations space. The APIsegment reported single-digit growth of 5.2% yoy during the quarter.

In the domestic domain, formulation sales grew by 12.3% yoy to ` 189cr ( ` 168cr),whereas API sales grew by 13.1% yoy to ` 40.7cr ( ` 36 cr). On the export front,formulation sales strongly grew by 68.9% to ` 206.6cr ( ` 122.3cr), driven by thegeneric business. The API segment reported growth of 2.0% to ` 90cr compared to ` 88.3cr in 1QFY2012.


3/12


August 1, 2011 3

Exhibit 3: Domestic sales trend

121

168

222

178

129

189

32 36 41 32 35 41

0

40

80

120

160

200

240

4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012Formulation API

( ` c r )


Exhibit 4: Export sales trend

131 122

175 167

227207

79 88 7687 82 90

0

40

80

120

160

200

240

4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012

Formulation API

( `

c r

)


OPM inches higher: Ipcas gross margin came in at 60% (57.8%) for the quarter.OPM came in at 17.4% (16.3%). The companys staff cost increased by 27.1% yoy,while other expenditure increased by 32.6% yoy. This rise in other expenditure,

which was higher than its sales, restricted the gross margin gains to percolate tothe OPM.


4/12


August 1, 2011 4

Exhibit 5: OPM trend

17.8

16.3

22.2

19.0

19.8

17.4

10.0

13.0

16.0

19.0

22.0

25.0

4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012

( % )


Net profit lower than estimates: Ipca reported net profit of ` 61.7cr ( ` 38.8cr), up58.8% yoy, higher than our estimates of ` 64.8cr. The rise in operating profit alongwith the decline in interest expenses resulted in robust net profit growth during thequarter.

Exhibit 6: Adjusted net profit trend

3542

65

53

62 62

0

20

40

60

80

4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012 Adjusted net Profit

( `

c r )



5/12


August 1, 2011 5

Concall takeaways

Management has guided for 1820% growth for FY2012. It has also guidedcapex of ` 250cr in FY2012.

Management has guided for 24% tax rate in FY2012, expecting utilisation oftax credits in the coming quarters.

The company has hedged US$155mn (nearly half of its anticipated exports forFY2012) at around ` 48/US$.

For Indore SEZ, the company remains hopeful of a plant inspection/approvalby 2HFY2012, which should enable a sharp scale-up in the US business fromFY2013.


6/12


August 1, 2011 6

Recommendation rationale

Domestic formulations business The cash cow : Ipca has been successful inchanging its business focus to the high-margin chronic and lifestyle segments fromthe low-margin anti-malarial segment. The chronic and lifestyle segments,comprising CVS, anti-diabetics, pain-management, CNS and dermatology products, constitute more than 50% of its domestic formulation sales. Managementhas ramped up its field force significantly with additions of divisions in the domesticformulations segment, taking the total current strength to nearly 5,000 MRs.

Exports to be the next growth avenue : On the formulations front, Ipca has beenincreasing its penetration in regulated markets, viz. Europe and US, by expandingthe list of generic drugs backed by its own API. In the emerging andsemi-regulated markets, Ipca plans to focus on building brands in the CVS, CNS,pain-management and anti-malarial segments along with tapping newgeographies. On the API front, where it is among the low-cost producers, Ipca isaggressively pursuing supply tie-ups with pharma MNCs.

Indore SEZ approval and tender business to enhance momentum : Ipca is awaitingUSFDA approval for its Indore SEZ. Once approved, the facility would cater to theUS generic market and could post sales of ` 300cr350cr. Further, Ipca hasreceived approval from the WHO for its anti-malarial product, making thecompany eligible to participate in the global tender worth US$300mn along withthree other players.

Valuation : We expect the companys net sales to witness a 16.3% CAGR to

` 2,548cr and EPS to register a 14.8% CAGR to ` 27.5 over FY201113E, driven by the US and domestic markets and the API segment. At current levels, the stock istrading at 16.5x and 12.0x FY2012E and FY2013E earnings, respectively.We recommend Accumulate on the stock with a target price of ` 358.

Exhibit 7: Key assumptionsFY2012 FY2013

Domestic sales growth (%) 14.9 12.7

Export sales growth (%) 19.5 17.5

Growth in employee expenses (%) 24.4 15.4

R&D as a percentage of sales 4.0 4.0

Operating margin (%) 20.5 21.5

Capex ( ` ) 189 180

Net debt/equity (x) 0.4 0.3



7/12


August 1, 2011 7

Exhibit 8: One-year forward PE band

-

50

100

150

200

250

300

350

A p r -

0 7

J u l - 0 7

O c t - 0

7

J a n - 0

8

A p r -

0 8

J u l - 0 8

O c t - 0

8

J a n - 0

9

A p r -

0 9

J u l - 0 9

O c t - 0

9

J a n - 1

0

A p r -

1 0

J u l - 1 0

O c t - 1

0

J a n - 1

1

A p r -

1 1

J u l - 1 1

5x 8x 12x 16x


Exhibit 9: Recommendation summary Company Reco CMP Tgt Price Upside FY2013E FY11-13E FY2013E

(` ) (` ) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) ROE (%)

Aurobindo Pharma Buy 168 278 65.1 8.8 1.2 6.7 29.5 13.8 19.0

Aventis* Reduce 2,087 1,937 (7.2) 23.2 2.9 18.8 15.6 15.8 17.1

Cadila Healthcare Buy 878 1,053 19.9 17.1 2.7 13.5 21.6 28.3 35.2

Cipla Buy 309 377 21.8 16.4 3.0 14.1 25.2 17.0 18.5

Dr Reddy's Buy 1,595 1,920 20.4 16.6 2.9 11.4 22.7 22.0 25.2

Dishman Pharma Buy 87 133 52.6 7.5 1.3 7.3 8.6 7.4 9.2

GSK Pharma* Neutral 2,305 - - 26.5 6.1 17.3 14.6 41.0 30.7

Indoco Remedies Buy 421 658 56.2 6.4 0.8 4.9 25.8 17.6 19.3

Ipca labs Accumulate 330 358 8.6 12.0 1.8 8.3 14.8 23.3 24.9

Lupin Buy 457 593 29.6 15.4 2.5 12.8 24.0 23.9 30.8

Orchid Chemicals Buy 203 373 84.1 5.4 1.3 5.8 29.6 11.7 23.4

Ranbaxy* Neutral 565 - - 12.6 1.8 7.8 31.8 26.8 25.9

Sun Pharma Neutral 530 - - 22.5 5.6 18.0 15.8 20.2 20.4

Source: Company, Angel Research; * December ending; # Recurring EPS taken for calculations


8/12


August 1, 2011 8

Profit & loss statement (Consolidated)Y/E March ( ` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Gross sales 1,097 1,326 1,602.8 1,938 2,272 2,622

Less: Excise duty 46 43 43 55 65 74Net sales 1,051 1,284 1,560 1,883 2,207 2,548

Other operating income 40 9 7 16 19 22

Total operating income 1,092 1,292 1,567 1,899 2,226 2,569

% chg 16.1 18.4 21.2 21.2 17.2 15.4

Total expenditure 884 1,027 1,233 1,523 1,755 2,000

Net raw materials 464 507 646 776 920 1,062

Other mfg costs 134 147 158 480 199 204

Personnel 147 188 221 266 331 382

Other 138 185 208 - 305 352

EBITDA 168 256 326 360 452 548

% chg (9.6) 52.8 27.4 10.2 25.7 21.1

(% of Net Sales) 16.0 20.0 20.9 19.1 20.5 21.5

Depreciation & amortisation 33 40 47 56 61 70

EBIT 135 217 280 304 391 478

% chg (13.4) 60.2 29.2 8.7 28.7 22.1

(% of Net Sales) 12.9 16.9 17.9 16.1 17.7 18.8

Interest & other charges 20 32 26 31 40 40

Other Income 20 1 3 8 1 1

(% of PBT) 11.5 0.3 1.0 2.8 0.3 0.2

Recurring PBT 175 194 263 297 371 461

% chg 13.7 10.7 35.3 13.1 24.9 24.2

Extraordinary expense/(Inc.) - 76.2 (3.3) (43.4) - -

PBT (reported) 175 118 266 341 371 461

Tax 35.8 23.3 62.7 78.4 119.9 114.8

(% of PBT) 20.4 19.7 23.6 23.0 32.3 24.9

PAT (reported) 140 95 204 262 251 346

Add: Share of earnings of asso. (4) 6 2 (0) - -

PAT after MI (reported) 136 101 205 262 251 346

ADJ. PAT 136 177 202 218 251 346

% chg 8.9 29.9 14.3 8.1 15.0 37.8

(% of Net Sales) 12.9 7.8 13.2 13.9 11.4 13.6Basic EPS ( ) 10.8 8.1 16.4 20.9 20.0 27.5

Fully Diluted EPS ( ) 10.8 8.1 16.4 20.9 20.0 27.5

% chg 7.5 (25.8) 103.7 27.4 (4.4) 37.8


9/12


August 1, 2011 9

Balance sheet (Consolidated)Y/E March ( ` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

SOURCES OF FUNDS

Equity share capital 25 25 25 25 25 25Reserves & surplus 564 606 840 1,026 1,233 1,499

Shareholders Funds 589 631 865 1,052 1,259 1,524

Minority interest - (0) (1) (1) (1) (1)

Total loans 353 460 455 531 531 531

Deferred tax liability 57 65 79 81 123 141

Total Liabilities 1,000 1,156 1,398 1,663 1,912 2,195

APPLICATION OF FUNDS

Gross block 579 779 881 1,073 1,263 1,443

Less: Acc. depreciation 165 202 243 299 356 426

Net Block 414 577 638 774 906 1,016

Capital work-in-progress 128 14 38 38 38 38

Investments 10 41 33 41 41 41

Current assets 605 740 899 1,059 1,303 1,518

Cash 9 11 11 11 83 111

Loans & advances 69 83 120 118 188 217

Other 527 645 768 930 1,032 1,191

Current liabilities 157 216 210 249 376 419

Net Current Assets 448 524 689 810 926 1,099

Total Assets 1,000 1,156 1,398 1,663 1,912 2,195


10/12


August 1, 2011 10

Cash flow statement (Consolidated)Y/E March ( ` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Profit before tax 175 118 266 341 371 461

Depreciation 33 40 47 56 61 70(Inc)/Dec in WC (48) (88) (98) (120) (44) (146)

Direct taxes paid (29) (22) (46) (78) (78) (97)

Cash Flow from Operations 131 48 169 198 310 288

(Inc.)/Dec. in fixed assets (144) (90) (134) (192) (189) (180)

(Inc.)/Dec. in Investments (4) - - (8) - -

Cash Flow from Investing (148) (90) (134) (200) (189) (180)

Issue of Equity 2 (5) 0 0 - -

Inc./(Dec.) in loans 74 26 (7) 76 - -

Dividend Paid (Incl. Tax) (22) (34) (38) (61) (59) (81)

Others (37) 56 10 (13) 10 -Cash Flow from Financing 17 44 (35) 2 (48) (81)

Inc./(Dec.) in Cash (1) 2 (1) (0) 73 27

Opening Cash balances 10 10 12 11 11 83

Closing Cash balances 10 12 11 11 83 111


11/12


August 1, 2011 11

Key RatiosY/E March FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Valuation Ratio (x)

P/E (on FDEPS) 30.4 40.9 20.1 15.8 16.5 12.0P/CEPS 24.5 29.4 16.4 13.0 13.3 10.0

P/BV 7.0 6.5 4.8 3.9 3.3 2.7

Dividend yield (%) 0.5 0.7 0.8 1.3 1.2 1.7

EV/Sales 4.3 3.6 2.9 2.5 2.1 1.8

EV/EBITDA 26.7 17.8 14.0 13.0 10.1 8.3

EV / Total Assets 4.5 4.0 3.3 2.8 2.4 2.1

Per Share Data ( ` )

EPS (Basic) 10.8 8.1 16.4 20.9 20.0 27.5

EPS (fully diluted) 10.8 8.1 16.4 20.9 20.0 27.5

Cash EPS 13.4 11.2 20.1 25.3 24.9 33.1

DPS 1.6 2.2 2.8 4.2 4.0 5.5

Book Value 47.0 50.5 69.1 83.7 100.1 121.2

Dupont Analysis

EBIT margin 12.9 16.9 17.9 16.1 17.7 18.8

Tax retention ratio 79.6 80.3 76.4 77.0 67.7 75.1

Asset turnover (x) 1.3 1.2 1.2 1.2 1.3 1.3

ROIC (Post-tax) 12.8 16.4 17.0 15.5 15.3 18.5

Cost of Debt (Post Tax) 5.5 6.3 4.4 4.9 5.1 5.6

Leverage (x) 0.5 0.6 0.6 0.5 0.4 0.3

Operating ROE 16.7 23.0 24.6 20.9 19.7 22.6

Returns (%)RoCE (Pre-tax) 15.3 20.1 21.9 19.9 21.9 23.3

Angel RoIC (Pre-tax) 17.3 21.7 22.6 20.5 23.0 24.9

RoE 25.6 29.0 27.0 22.8 21.7 24.9

Turnover ratios (x)

Asset Turnover (Gross Block) 2.0 1.9 1.9 1.9 1.9 1.9

Inventory / Sales (days) 84 81 80 81 79 41

Receivables (days) 74 85 85 82 81 43

Payables (days) 28 31 26 25 31 16

WC cycle (ex-cash) (days) 126 134 139 142 135 130

Solvency ratios (x)Net debt to equity 0.6 0.7 0.5 0.5 0.4 0.3

Net debt to EBITDA 2.0 1.8 1.4 1.4 1.0 0.8

Interest Coverage 6.6 6.8 10.6 9.7 9.8 12.0


12/12


August 1 2011 12

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companiesreferred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits andrisks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, makeinvestment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in thisdocument are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions andtrading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company'sfundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .

Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While

Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking orother advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or inthe past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or inconnection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, pleaserefer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited andits affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Ipca Laboratories1 . Analyst ownership of the stock No2. Angel and its Group companies ownership of the stock No3. Angel and its Group companies' Directors ownership of the stock No4. Broking relationship with company covered No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

ipca laboratories

Documents