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Strong performance in branded finished dosages, growth momentum in exports and a strong position in anti-malarial drugs makes Ipca Labs, a medium sized pharma company with Rs 1,100 crore revenues, a good investment option.

At the current market price of Rs 567, the stock trades at 8 times its 2008-09 earnings per share; at a discount to like-sized peers such as Torrent Pharmaceuticals and Matrix Labs.

Ipca has a diversified business strategy that minimises risks, both segment and geography-wise. In the last five years, Ipca Labs has grown revenues at annualised rate 19 per cent while profits have edged up 12 per cent.

The company has been able to maintain operating margins of over 20 per cent even as it has heavily invested in building capacities and expanding facilities, which is a positive.

The company has chosen to take a differentiated approach to acquire a front end presence in various markets. This is best exemplified by its tie-up with Ranbaxy for the US generic market and relationships with local leaders in semi-regulated markets in Europe.

Ipca has submitted 44 generic formulation filings for UK registration and 20 more generic formulations are under development at various stages for the European market. Also, the US business is expected to gain greater traction by the latter half of 2009, as the bulk drugs business may start contributing strongly.

Back home, Ipca has been able to deliver a 15-20 per cent growth (higher than industry) with ramp up in its major revenue therapies such as cardiovascular, malaria and pain-management. Over five products could be launched within the next fiscal.

The company is also looking at anti-cancer drugs and has definite plans to tap that segment, which is slated to grow the fastest over next few years. Ipca is aggressively pursuing growth in malarial segment as it aims for Rs 400 crore sales by 2010-11 in this area, from around Rs 200 crore currently.

The recent non-exclusive tie-up with the Clinton Foundation will also help it deepen relationships with large institutions/governments; it already has World Health Organization pre-qualification. Lastly, Ipca has up scaled up its capabilities in the high-margin contract research and manufacturing space. By next 12-15 months, that segment is expected to start contributing to Ipca’s sales and profits as the clients start taking up products. Any depreciation of the rupee against the dollar would remain the key risk to Ipca’s earnings, as it has reported significant forex losses in June, on its hedging exposure (taken to cover forex receivables).

Kumar Shankar Roy

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