Kotak Securities keeps ACCUMULATE on IPCA Labs

Kotak Securities keeps ACCUMULATE on IPCA Labs

IPCA Laboratories’ total income for during Q2FY09 grew 21.4% to Rs3.48 billion as compared to Rs2.86 billion in Q2FY08, led by better performance in domestic as well as international formulation business.

Revenue from international markets grew 19.6% to Rs1.65 billion as compared to Rs1.38 billion, contributing 46% of total sales. Domestic sales grew 18.7% to Rs1.92 billion as compared to Rs1.62 billion.

EBIDTA for the quarter grew 46.6% to Rs832 million as compared to Rs568 million. The strong growth in EBIDTA was mainly due to improvement in operating margin.

EBIDTA margin expanded by 410bps to 23.9% led by change in sales mix (higher formulation sales) and better realization due to rupee depreciation.

Net profit after tax declined 19.6% to Rs365 million as compared to Rs454 million. The decline in net profit was due to provision of Rs236 million for MTM loss on foreign currency debts.

During the quarter, IPCA has provided Rs236 million (verses Rs158 million forex gain in Q2FY08) for foreign exchange marked-to-market translation loss on outstanding foreign currency liabilities. Hence, on a like-to-like basis PBT grew 53% to Rs673 million.


We have fine-tuned our revenue and earnings estimate for FY09 to incorporate the foreign exchange loss on translation. We expect 16.4% and 14% net sales and earning CAGR over FY08-10E. We expect EPS of Rs48.8 in FY09E and Rs72.1 in FY10E.

The company is considering a share buy-back to boost investor sentiment in the stock that has lost about 40% of its value so far this year.

At the current market price of Rs.395, the stock is trading at 8.1x FY09 and 5.5x FY10 earning estimates.

We believe there has been significant contraction in the valuations due to increased risk perception, sharp correction in capital market and macro economic slowdown.

We reduce our target price to Rs585 (earlier Rs800) attaching 12x price-to-earning multiple to its FY09 expected earnings. We recommend ACCUMULATE on the counter.