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Prabhudas Lilladher
Ipca Labs (Buy)
CMP: ₹679.80
Target: ₹837
Management has invited USFDA to revisit the three facilities, which are banned to export drugs to the US since FY15. Unlike peers, IPCA completed exhaustive remediation work, including re-modelling of facilities and deployed three consultants for the same to get going. With a cooperative approach of the new commissioner and FDA’s track record of setting up less tougher yardsticks for Oral and API plants, we expect re-approval of the facilities in FY19E.
Re-initiation of anti-malarial tender business for private-fund programme and invitation to USFDA for revisit of three plants are the key developments in recent times. With slew of major reforms by both, the government and regulator, India formulations expect to achieve normalised sales in FY18E-20E. Extending learning curve post USFDA issues, IPCA commissioned new API plant in Baroda and de-risked exports of APIs that contribute 18 per cent of sales in FY17.
Risks: Delay in attaining triggers for key events to be a major risk, while large orders from the private funds or faster FDA resolution to be catalysts for further upgrade.
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