IPCA Labs’ Shares Extend Gain As Brokerages Remain Optimistic After Q1 Results

A technician inspects a tray full of pills at the end of the production line. (Photographer: Jonathan Drake/Bloomberg News)

IPCA Labs’ Shares Extend Gain As Brokerages Remain Optimistic After Q1 Results

Shares of IPCA Laboratories Ltd. gained as brokerages remained optimistic on the company, citing improving India formulations, bulk drug performance; and better-than-expected exports.

The drugmaker saw a 40% sequential jump in its revenue at Rs 1,565.8 crore in the quarter ended June. Its net profit surged 90% at Rs 306.7 crore.

Other highlights (QoQ)

  • Ebitda stood at Rs 416.5 crore against Rs 228.9 crore. The Bloomberg consensus estimate was Rs 351.4 crore.

  • Margin was at 26.6% compared with 20.5%. Analysts had pegged the metric at 25.3%.

AK Jain, joint managing director, in a post-earnings call said the business performance for the quarter was better than the company’s own expectations. Growth was fairly broad-based and key therapeutic areas registered strong performance with increased demand, Jain said.

  • Pain management sales grew 36% over the year earlier, while cardiovascular and anti-diabetic segment, which makes up 18% of its revenue, rose 14%.

  • Antibacterial therapy sales increased 173% year-on-year. As lockdowns eased, derma sales recovered and grew 89%.

  • Sales of cough & cold segment recovered, and increased 83% after a continuous decline on a sequential basis.

Shares of IPCA Labs rose as much as 4.2% to Rs 2,389.80 on Tuesday after closing 5.6% higher yesterday, which was its best close since Feb. 3. With today's rise, the stock has gained for four straight sessions.

The stock gained as much as 7% to hit an intraday high of Rs 2,323 apiece in the afternoon trade on Monday.

Of the 24 analysts tracking the company, 19 have a ‘buy’ rating and five suggest a ‘hold’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 7.9%.

The stock has gained 3.6% so far this year compared with a 14.8% rally in the S&P BSE Sensex.

Here's what brokerages made of IPCA Labs' Q1 FY22 performance...

CLSA

  • Upgrades to ‘outperform’ from ‘sell’, and raises target price from Rs 1,620 to Rs 2,400, implying a potential upside of 10%.

  • Results were above the research firm’s/consensus forecasts with all business segments coming in above expectations. Lower operational expenditure once again drove the beat on Ebitda margin.

  • IPCA has had a strong start to FY22, and its 9-10% year-on-year revenue growth and 25% Ebitda margin guidance for FY22 have upside risk.

  • The quarter was strong for India, while export markets performed better than expected. India formulations revenue grew 25% year-on-year, led by key therapies of pain, antibacterial, and gastro.

  • IPCA witnessing an improving business environment though is still is maintaining its guidance and will look to revise it post Q2 results.

  • IPCA has taken a 6% price increase in India to offset some of the cost pressures. It expects gross margins to improve sequentially.

Nomura

  • Upgrades to ‘buy’ from ‘neutral’, raises target price from Rs 2,216 to Rs 2,526, implying a 16% upside.

  • All segments surprised on the upside, as IPCA delivered year-on-year revenue growth of 3% on a high base. As per management, growth of its India formulations and API segment is turning out stronger than its earlier expectations.

  • Clearance of manufacturing sites by the U.S. FDA for supplies to the U.S. market could drive valuation multiples higher. However, there is no visibility of clearance by the U.S. FDA currently.

  • Downside risks include slower-than-estimated growth in India and API and higher-than-estimated cost pressures.

Jefferies

  • Maintains ‘buy’ rating, hikes target price from Rs 2,429 to Rs 2,547, implying a potential upside of 19.5%.

  • IPCA’s domestic business formulations were helped by healthy growth in cardiovascular, anti-diabetics, anti-bacterial, antimalarial, derma, and cough & cold therapies.

  • Energy, intermediates and shipping charges have seen an increasing trend.

  • IPCA typically registers a very strong second quarter in the domestic market and had a very healthy Q1. Management said the current trends for July and August are very encouraging and they might have to revise their guidance upward.

  • With two new plants, IPCA is also hedging its captive API needs when the import alert for U.S. formulations is lifted. IPCA also foresees that it might need capacity for domestic formulations in the coming years. Due to this, capex is likely to be near Rs 400 crore for the next couple of years.

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