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Ipca Laboratories 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, Ipca Laboratories (Ipca) reported higher than expected results on the net profit front, while the sales came in just in line with expectations. The topline grew by 22.6% yoy to Rs.758cr, just in line with our expectations of Rs.740cr. The OPM also came in line with expectations at 21.8% vs an expected 21.9%. However, in spite of the same, the adjusted net profit growth came in at 60.5% yoy, ending the period at Rs.125cr vs our expectation of Rs.107cr, on the back of higher other income. We recommend an Accumulate rating on the stock.

Net profit better than expectation: Ipca reported net sales of Rs.758cr, up 22.6% yoy, just in line with our expectation of Rs.740cr. The OPM also came in line with expectation at 21.8% (21.9%). Recurring profit came in at Rs.125cr, higher than our estimate of Rs.107cr, on the back of higher other income (Rs.29.3cra vs Rs.8.1cr in 2QFY2012). Segment wise, for 2QFY2013, the overall formulations business grew by 23% to Rs.602cr (Rs.490cr), contributing 79.5% to the companyRs.s total revenue. The API business witnessed a strong 21% growth during the quarter to Rs.156cr, contributing 20.5% to the total revenue. The adjusted net profit for the quarter grew by 60.5% yoy to Rs.125cr.

Outlook and valuation: We expect net sales to post a 21.4% CAGR to Rs.3,474cr and EPS to register a 30.6% CAGR to Rs.37.3 over FY201 2—14E, driven by the US and domestic markets and the active pharmaceutical ingredient (API) segment. At the current levels, the stock is trading at 15.0x and 12.0x FY2013E and FY2014E earnings, respectively. We recommend an Accumulate rating on the stock with a price target of 7485.