IPCA Laboratories has regained its position in UK market and will start shipment to US market by 2HFY09. Overall, growth momentum likely to be strong and company strive to move up with value chain with increasing contribution from formulation business.
Domestic formulation business has grown by 22% (much ahead of industry growth rate) to Rs4.3 billion for FY08. Domestic formulation sales are expected to grow by 18% in FY09, mainly driven by therapeutic expansion through new product/molecule introduction, especially in fast growing life style segment and improved coverage.
Growth in net sales is pegged at 18.4% to Rs12.9 billion in FY09 and at 15.5% to Rs14.9 billion in FY10. The higher expected sales growth in FY09 is due to new products launches in domestic and UK markets, supplies to new emerging economies and US markets.
On a high base, we expect net profit growth of 21.8% over the next two years. We believe that company’s focus on branded formulations business and emerging economies (mainly India, Africa. SE Asia, Latin America and CIS) should drive the growth.
According to our estimates, IPCA should report an EPS of Rs69.7 and Rs82.6 for FY09 and FY10, respectively. The compounded growth in EPS over the next two years will be 21.8%.
The stock is currently trading at Rs548 and has remained market performer. At current market price, it trades at 7.9x FY09 and 6.6x FY10 earning estimates. We maintain BUY on the stock with our target price of Rs800, which provides 46% potential upside from current level.