Ipca Laboratories (Ipca), a vertically integrated company with a geographically diversified business model, has grown at steady pace in the past posting a CAGR of 15.7% in net sales and a CAGR of 24.1% in net profit over FY2005-08 primarily driven by its Domestic Formulations Segment.
Going forward, we expect the next leg of growth for the company to come from the Export Segment as it leverages its API capabilities to create a sturdy business in the Regulated and Emerging Formulations market.
We estimate Ipca’s net sales to post a CAGR of 17.4% and adjusted net profit to register CAGR of 15.6% over FY2008-10E. At Rs390, the stock is trading at 9.1x FY2009E and 6.2x FY2010E Earnings.
The stock is trading at attractive valuation compared to its historical trading band of 5-15x. We initiate coverage on the stock, with a BUY recommendation and target price of Rs505.