Ipca Labs may outpace past 5-year growth ahead, analysts say buy the dips

Shares of Ipca Labs slipped 2.82 per cent to Rs 1,312.55 per share on the BSE in Friday’s early morning trade. This came after brokerages contended that the pharmaceutical company reported mixed financials for the April-June quarter of the financial year 2024-25 (Q1FY25).

The company’s net profits and operating profit surpassed street estimates but topline lagged due to weak exports. Japanese brokerage firm Nomura said that the company’s profit after tax (PAT) and earnings before interest, tax, depreciation and amortisation (Ebitda) beat their estimates by 2 per cent and 8 per cent, respectively. While revenue was 2 per cent lower than expected due to weak international sales. 

Analysts said that the Q1 growth was led by the domestic market due to low costs, chronic drugs and a sustained Ebitda recovery at the company’s subsidiary Unichem Labs. However, exports were impacted by technical and supply chain issues. 

Despite some weakness in the June quarter, the undertone remains bullish for Ipca Labs medium term earnings growth, analysts believe. 

Nomura expects domestic formulation to grow 12 per cent annually supported by sustained growth in pain, cardio and other smaller therapies, adding that the drag from malaria and diabetes is likely to ease as the related revenue contribution has declined. 

Export revenue is also expected to recover from a low base, with potential upside from the US given regulatory clearance for the manufacturing sites, the brokerage said. 

Meanwhile analysts at Nuvama Institutional Equities reckoned that improvement in Unichem seems to be slightly lagging, though efforts are underway to improve the performance by FY26. 

“Unichem in the US is facing marginal pricing pressure, and its Ebitda margins are yet to show strong synergies/cost optimisation benefits. Unichem continues to roll out efficiency measures, which are likely to take 12–18 months to show improved performance,” analysts at Nuvama said. 

Accordingly, the company's managment expects FY25 revenue to grow 9 per cent year-on-year, lower than the previous guidance of 10.5-11 per cent, though the company raised its Ebitda margin guidance by 50 basis points.

Valuation call

Brokerages maintained that FY26 and FY27 shall be strong growth years for IPCA with potential recoveries in the US and the API business.

“Over the past one year IPCA stock has re-rated to 30-35x its one-year forward earnings from 20-25x. On our estimates, the stock trades at 38.7x/30.0x FY25/FY26 EPS of Rs 34.9/Rs 45.0. We argue that IPCA should trade at a premium to its historical trading range due to acceleration in earnings (25 per cent CAGR over FY25-27F versus 6 per cent over FY19-24) which we believe is sustainable beyond FY27F,” Saion Mukherjee, Amlan Jyoti Das, and Adrit Chaturvedi of Nomura wrote in a report. 

The valuation multiple is supported by more than 50 per cent Ebitda contribution from domestic formulation, on our estimate, upcycles in international business and Unichem, and limited risk related to capital allocation in the near term, the brokerage added

The brokerage maintained its ‘Buy’ call on the stock with a raised target price of Rs 1,502, adding that any correction will be a buying opportunity based on a 2-3 years perspective. 

Nuvama, too, retained its ‘Buy’ rating on the counter with a revised target of Rs 1,563. 

Q1 earnings show

Ipca Laboratories on Thursday reported an 18 per cent increase in consolidated net profit to Rs 192 crore for Q1 ended June 30, 2024, driven by strong domestic sales.

This compares to Rs 163 crore for the same period last year. Revenue surged to Rs 2,093 crore from Rs 1,585 crore. Domestic formulations grew by 12 per cent to Rs 873 crore, while export income fell by 4 per cent to Rs 591 crore.

At 10:25 AM; the stock of the company fell 2.25 per cent at Rs 1320.35 per share on the BSE. By comparison, the BSE Sensex rose 0.64 per cent at 79,615 levels.