Uptick in domestic segment, biz growth continue to drive Ipca Laboratories

Further rerating of stock will hinge on USFDA resolution

The stock of Ipca Laboratories has been one of the biggest outperformers among Indian pharma companies over the past year. It has gained 52 per cent, compared to the 4 per cent decline for BSE Healthcare — its peer index.

The key trigger for the company has been the uptick in its domestic segment and its ability to grow this business at a rate that is one and a half times that of the industry’s.

In the December quarter, too, the company is expected to post a strong 16 per cent growth in revenue, led by robust domestic and institutional sales. Among the key segments which have helped the company deliver superior growth is pain management. The therapy segment accounts for about half of the company’s domestic sales and is growing at over 20 per cent.

In fact, its painkiller brand, Zerodol SP, recently crossed the Rs 200-crore mark, growing at 26 per cent year-on-year. Its top two brands are in pain management, which, coupled with anti-malarials, dominate its portfolio.

While prospects for the India business remain strong, analysts believe the company will post robust revenue growth for the exports business at 15-20 per cent. Export formulations, which account for 28 per cent of sales, are led by growth in branded business and generic sales across geographies. The institutional sales, too, have revived, given the onset of orders from the global fund. Growth in active pharmaceutical ingredient (API) business (26 per cent of sales) is led by both domestic and export APIs.

Driven by operating leverage, analysts at IIFL Securities expect the operating profit margins of the company to improve by 150 basis points every year during the 2018-19 to 2021-22 period. This should enable net profit growth in this period to improve by 28 per cent on an annual basis.

While the steady India business and resumption of institutional tender business are positives, resolution of compliance issues with the US drug regulator Food and Drug Administration would further boost its operating efficiencies and lead to rerating. At the current price, the stock is trading at 21x its 2020-21 earnings estimates. Investors with a long-term horizon can look at the stock on dips.