 "Ipca: Investors should await clarity on FDA issues")
The Ipca Laboratories stock gained 7.5 per cent on Wednesday after CLSA upgraded it, on the back of continuing stable India business growth and valuations. Despite a weak malaria season, Ipca’s India business in FY16 grew seven per cent over a year to Rs 1,210 crore, and the firm expects it to grow 11-12 per cent in FY17.
There could be an upside to this if the malaria season is better than expected. Among segments, formulations is the biggest segment for Ipca, comprising domestic formulations (44 per cent of overall revenues) and export formulations (33 per cent).
In the international segment, Ipca expects the European business to recover this year (FY17), as supply-side issues have been sorted out, with a bit of a revival seen in the branded business. The institutional malaria business, however, will continue to be impacted until the US Food and Drug Administration (FDA) issues are resolved. The company expects to complete remedial activity by end-2016, after which it will ask for a re-inspection of facilities from the USFDA. Global Fund’s decision not to allocate any orders to the company’s institutional malaria business also hit the firm. Global Fund accounts for 70 per cent of the total institutional business in Africa of the malaria drug.
The pressure on segments other than India business (grew nine per cent in the March quarter) is evident with exports registering a growth of three per cent, 37 per cent lower than the estimates. For FY16, exports were down 26 per cent. The other segment of active pharma ingredients (23 per cent of revenues) too showed weakness, down 25-28 per cent in the quarter. Given the poor utilisation levels on the back of FDA issues, operating margins fell to 10.5 per cent in FY16, against 17 per cent in FY15.
However, Edelweiss Securities has advised investors not to go for bottom-fishing as Ipca’s businesses are going through a rough patch and the situation is unlikely to improve in the medium term.
There could be an upside to this if the malaria season is better than expected. Among segments, formulations is the biggest segment for Ipca, comprising domestic formulations (44 per cent of overall revenues) and export formulations (33 per cent).
In the international segment, Ipca expects the European business to recover this year (FY17), as supply-side issues have been sorted out, with a bit of a revival seen in the branded business. The institutional malaria business, however, will continue to be impacted until the US Food and Drug Administration (FDA) issues are resolved. The company expects to complete remedial activity by end-2016, after which it will ask for a re-inspection of facilities from the USFDA. Global Fund’s decision not to allocate any orders to the company’s institutional malaria business also hit the firm. Global Fund accounts for 70 per cent of the total institutional business in Africa of the malaria drug.
The pressure on segments other than India business (grew nine per cent in the March quarter) is evident with exports registering a growth of three per cent, 37 per cent lower than the estimates. For FY16, exports were down 26 per cent. The other segment of active pharma ingredients (23 per cent of revenues) too showed weakness, down 25-28 per cent in the quarter. Given the poor utilisation levels on the back of FDA issues, operating margins fell to 10.5 per cent in FY16, against 17 per cent in FY15.
However, Edelweiss Securities has advised investors not to go for bottom-fishing as Ipca’s businesses are going through a rough patch and the situation is unlikely to improve in the medium term.