Target: ₹950
CMP: ₹868.45
IPCA Laboratories’ H1 performance was muted, impacted by higher overheads, high Covid base and issues related to the UK and export API business. However, we see margins are likely to recover as revenues scale up with easing of certain overheads and raw material prices.
Domestic business (45 per cent of total sales) remained strong and it will continue to outperform Indian pharma market. Additionally, export business is also on a gradual recovery mode with the UK and export API business expected to normalise by Q4-FY23.
IPCA’s sales grew 4 per cent year-on-year at ₹1,600 crore vs our estimates of ₹1,650 crore. Export API declined 22 per cent q-o-q due to lower sales from Sartans and lower demand. Domestic API grew 14 per cent y-o-y.
Gross margins were at 64.1 per cent in Q2 — up 60 bps q-o-q. There was a forex loss of ₹12 crore booked in other expenses during the quarter. PAT declined 42 per cent y-o-y to ₹140 crore.
The export API business was impacted due to lower demand from LATAM and Asia markets. The management has guided for 2 per cent decline in export API in FY23 vs 5 per cent growth earlier. Sartan issues have been resolved, however due to competitive intensity there is lower pricing and market share.