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Emkay Global
Ipca Laboratories (Buy)
CMP: ₹1,121.9
Target: ₹1,200
Ipca Laboratories is engaged in pharmaceuticals business. The company is a manufacturer and supplier of over 10 active pharmaceutical ingredients (APIs). It offers APIs, such as atenolol, hydroxychloroquine sulfate, morantel citrate, pyrantel pamoate and zaltoprofen.
Ipca’s Silvassa plant has been classified as Official Action Indicated (OAI) by the USFDA after inspection. This plant is already under the USFDA import alert and was re-inspected between August 19 and 23, 2019, which culminated into three observations.
The OAI status is on the expected lines and implies that the resolution process will take longer — unlikely by FY21 — in our view. However, our thesis remains unchanged and FY21E EPS does not factor in any upsides from the US business.
It is still unclear if Silvassa observations would cause any delay in the re-inspection of other two plants as the USFDA expressed its dissatisfaction on the remediation progress at Silvassa.
We maintain ‘Buy’ with a target price of ₹1,200, valuing the company at 20xFY21 EPS due to strong momentum of the non-US businesses and the underlying operating leverage. The US plant resolution, whenever it happens, will be an added optionality. We are overweight in EAP.
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