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IPCA Laboratories Ltd has maintained robust performance in the domestic market. Given a strong product portfolio of pain management, anti-bacterial drugs, among others, as well as strong institutional business, prospects remain strong. Domestic formulations sales grew 30% year-on-year (YoY) during Q2.

While domestic formulations, contributing 45% to overall sales, remained on a strong wicket, tepid growth in exports, API (active pharmaceutical ingredients) sales, and rising costs pose challenges.

“Revenues were mainly riding on healthy domestic revenue growth of 30% YoY," said analysts at Jefferies India Pvt Ltd. Ipca has seen strong demand for anti-bacterial products in first half and company has guided that even if demand wanes, domestic sales should continue high-teens growth. Gross margin came at 64.8% and had more than 200bps impact, which analysts at Jefferies attributed to rising raw material cost.

Weakness was observed in the company’s API sales, which contributed 23% to overall sales. API sales declined 6% YoY. Export income, too, fell and was down 7% at 637.76 crore.

Analysts at Motilal Oswal Financial Services Ltd (MOFSL) said, “The strong show in the Domestic Formulation (DF) segment was offset, to a large extent, by the muted exports formulation and API segments, which dragged down margins on a YoY as well as sequential basis."

Sales in European markets remained impacted as blood pressure management products, sartans API sales have been stopped due to new regulatory requirements. Ipca has implemented changes and has applied for EMA approval, said analysts. 

Sartans contribute 30% of API export sales for the company. Ipca’s EU generics sales are also struggling at the moment as distributors sit on high inventory and Covid restrictions disturb market conditions, said analysts at Jefferies.

Near-term outlook has also been dented by rise in commodity prices which limits any material near-term upside in the stock, said analysts at Nomura Research. “However, we think in the medium term, the impact of the sudden rise on costs shall abate and the company will be able to mitigate the impact through price increases," they added.

Nevertheless, analysts believe long-term growth prospects remain intact. Those at MOFLS said they expect a 17% earnings CAGR over FY21–23, largely led by strong sales growth in the DF segment.

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