Ipca Labs share price down over 11% in 3 days after Q4 result; should you buy or stay away?

Ipca Labs share price: Ipca Laboratories shares continued to trade in negative territory for the third consecutive session on Friday, May 31, following disappointing quarterly earnings for the Mach quarter. On Friday, Ipca Labs share price opened at ₹1234.85 against its previous close of ₹1,249.65 and fell nearly 7 per cent to the level of ₹1,168.10. Considering this price, the stock has declined 11.5 per cent in three sessions.

During market hours on Wednesday, May 29, Ipca Labs reported a 22.12 per cent year-on-year (YoY) fall in Q4FY24 consolidated net profit to ₹59.59 crore compared to a profit of ₹76.52 crore in the same period last year.

However, the company's revenue rose 34.5 per cent YoY to ₹2,033.01 crore compared with ₹1,511.63 crore in the same quarter last year.

Also Read: IPCA Laboratories Q4 Results: Profit falls by 22.12% YoY

Barring the recent selloff, Ipca Labs' share price has been on a roll in the last year, surging as much as 82 per cent till the May 30 close.

The stock hit its 52-week high of ₹1,373.95 on April 18, 2024, and its 52-week low of ₹692.30 on June 26 last year.

What should you do after the Q4 result?

Several brokerage firms have given buy recommendations on the stock even though the company reported a fall in Q4 profit.

Brokerage firm Nuvama Wealth Management retained a buy call on the stock but trimmed the target price to ₹1,438 from ₹1,480 earlier due to an 8 per cent cut in FY26E EPS (earnings per share).

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Nuvama observed that Ipca's management expects a nearly 18 per cent margin in FY25E that shall grow to nearly 21 per cent in FY27E.

"Over six to seven years, Ipca expects a 24–25 per cent EBITDA margin that can lead to 20–25 per cent CAGR in EBITDA. This shall be achieved by cost optimisation, backward integration, new product launches, a partnership between IPCA and Unichem and a better revenue mix. While we remain optimistic, we cut FY25E and FY26E EPS by 14 per cent and 8 per cent, respectively," said Nuvama.

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Brokerage firm JM Financial also maintained a buy call on the stock, raising the target price to ₹1,365 from ₹1,280 earlier, anticipating a turnaround in the US business, strong domestic franchise and margin improvement.

JM Financial underscored that Ipca's management largely maintained 14-15 per cent growth and 18 per cent margins guidance for FY25 despite reporting sober growth in some of the business segments in Q4.

"Ipca expects domestic growth to be in double digits (higher than the market) and US business to pick up, led by 7 to 8 new product launches in FY25 (a few more from 20+ already approved products). API (active pharmaceutical ingredient) businesses will likely grow at high single digits while the institutional segment will deliver a 14-15 per cent growth," said JM Financial.

"Margin improvement of 100bps+ will come from Unichem and the standalone business. While the margin delta has already started reflecting in Unichem’s reported financials, the more tangible synergistic benefits will play out gradually. Ipca's US business is at an inflexion point – supplies have just begun, and six to seven new launches are expected this fiscal," said JM Financial.

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On the other hand, some brokerage firms remain cautious about the stock for the short term due to its sharp gains in the last year.

Brokerage firm Motilal Oswal Financial Services believes Ipca continues to progress well in improving the profitability of Unichem and enhancing synergy with it. Management is also working on scaling up the US generics business from its own facility, the brokerage firm said.

Moreover, Motilal pointed out that Ipca remains on track to outperform the industry in the DF (dosage form) segment. Motilal expects a 39 per cent earnings CAGR over FY24-26, partly due to the low base of FY24.

However, the brokerage firm maintained a 'neutral' call on the stock with a target price of ₹1,140 as it believes the current valuation of the stock adequately factors in the upside in earnings.

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