PL Stock Report - Ipca Laboratories (IPCA IN) - Q2FY24 Result Update - In line EBITDA; Unichem integration and US scale up is key - HOLD

Ipca Laboratories (IPCA IN) – Param Desai – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs1,052 | TP: Rs1,060

Q2FY24 Result Update – In line EBITDA; Unichem integration and US scale up is key

Quick Pointers:

§ Domestic formulation business continues to outperform market

§ Unichem business got consolidated for 2 months.

Ipca Labs (IPCA) Q2 adjusted EBITDA of Rs3.6bn was broadly in line with our estimate. Domestic formulation business continues to outperform and grow at healthy levels. Further export business (70% of total sales including Unichem) have also reported steady growth and with plant clearance from USFDA will kick start US business from FY25. Our FY24E EPS stands reduced by 8% as we factor in Unichem acquisition however FY25E EPS stands revised upward by 2% as factor in resumption of US sales. The Unichem acquisition will allow IPCA to scale up US formulation. At CMP, the stock is trading at 28.5x FY25E factoring in near term recovery. Maintain our ‘Hold’ rating with revised TP of Rs1,060/share (Rs880 earlier), valuing at 25x Sept 2025E EPS as we roll forward.

§ Strong revenue growth across segments: IPCA’s revenues came in at Rs 20.3bn. The YoY and QoQ stands non comparable due to integration of Unichem’s business which got consolidated for 2 months. Ipca booked Rs2.85bn revenues from Unichem. Ex Unichem, revenues came in at Rs17.5bn, in line with our estimate. Domestic formulations remained healthy at 10.4% YoY to Rs8.5bn, we est 8.5%. Export formulation increased by 16% YoY. Branded and generic business growth was strong at 15% and 32% YoY respectively. Institutional business was down by 21% YoY. API business witnessed recovered with growth of 9% YoY. Revenues from subsidiaries came in higher at Rs 3.7bn aided by Unichem.

§ Ex-Unichem and one offs OPM at 19.5%: Consolidated gross margins stood at Rs 66.7%. There was a forex gain of Rs 18mn booked under other expenses in Q2FY24. Further there was one time costs of Rs 395mn related to Unichem acquisition. Adj for forex and one off expenses; EBITDA was at Rs 3.6bn. Mgmt cited Unichem margins were at 5%. Adj for Unichem and one offs EBITDA came in at 3.45bn with OPM at 19.5%; in line with our estimate Depreciation and interest charges were higher led by Unichem acquisition. Tax rate came in higher at 33%. Resultant reported PAT was below our estimate

§ Key Concall takeaways: (1) Domestic market revives with Pain management therapy growing 12% followed by strong growth across cardiac, CNS, Derma, Neurology and Opthal. However anti-malarial, anti-bacteria and cough and cold were impacted due to weak season. Also witnessed increased in MR productivity (2) Unichem integration: Focus remains on reducing Unichem’s air freight cost which account for 50% of logistic cost. Mgmt cited to integrate IPCA’s low cost 10-12 API’s in Unichem’s basket over 12-15 months’ time frame (3) US: Pithampur import alert should be lifted shortly. Started process of validation and shipments to US should resume from Q1FY25. (4) FY24 Guidance – 12-14 % for domestic business, branded generic – 12%, export generic business – 20%, API business 7-8% decline (5) UK and EU markets largely supported the growth in export generic business (6) Overall the company continued to face price and volume decline on sartans and anti-malaria API.

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