“BUY” This Mid Cap Pharma Stock With A Target Price of Rs. 2530: Edelweiss Securities

The brokerage’s take on Ipca Laboratories

According to the brokerage's research report "Ipca has grown at almost 1.5x industry growth over the last five years. Its success is attributable to its R&D, where it has successfully demonstrated aceclofenac (Zerodol) superiority to other NSAIDs and low0dose chlorthalidone (CTD) efficacy that has enabled it to shift Rx to its own brands. Ipca is confident of not only sustaining its pain franchise- Zerodol peak sales >INR10bn - but also grow cardiac and other divisions. The company is getting aggressive to expand cardiac therapy to an aspirational 25% of revenue (from ~17-18%) and plans to add 350-400 salesforce."

Edelweiss Securities Ltd in its research report has also said that "The UK business is ~60% down from its peak, but Ipca is confident of recovering a large part in the next 18 months as it will have a basket of ~25 products (up from 9) the next 18 months on its own label. The EU situation, which is currently facing excess inventory, should start easing over the next couple of quarters. Ipca's acquisitions are either to fill gaps in existing businesses (Lyka for injectable) or part of long-term plans (Pisgah: low-volume/high-value CRAMS). Investments in subsidiaries/associates have been less than USD100mn over the last five years, keeping BS lean."

Investment rationale

The brokerage in its research report has reported that "Ipca has had a strong execution track record in the past years along with maintaining healthy balance sheet (low net D/E) despite an investment phase. Even without the US, Ipca is likely to report double-digit growth as: a) main domestic therapies pain and CVS continue to post market-leading growth; b) API exports to remain strong as Ipca bolsters sartans over its existing portfolio; and c) recovery in generics led by EU. Ipca has a moat w.r.t. cost leadership in several APIs, enabling it to be the cheapest supplier in the world. With domestic and APIs contributing ~70% to revenue, Ipca deserves to trade at a premium."

Buy Ipca Laboratories With A Target Price of Rs. 2,530

The brokerage has stated that "The unprecedented input cost escalation should start easing over the next six months. Ipca is confident of maintaining its volume in sartans as it has developed a new process and expects orders in the rest of the API business to also pick up. Near-term pressures should not obscure its market-beating growth in India, its vertically integrated business model, API potential beyond FY22 due to capacity addition and an enviable cost optimisation track record."

According to the brokerage's call "Ipca has been a beneficiary of several one-offs such as HCQs during covid and sartan opportunities in API. Hence, while FY22 growth looks challenging, FY23 should see normal growth resuming. We stay optimistic on Ipca's long-term prospects. Retain 'BUY/SO' with a TP of INR2,530."

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.