Accumulate Ipca Laboratories Ltd for the Target Rs. 1,525 By Prabhudas Liladhar Capital Ltd
Ipca Labs (IPCA) reported EBITDA of Rs4.2bn (up 10% YoY) was marginally below our estimates led by miss in Unichem nos. Q1 profitability for Unichem was weak with 4.3% OPM; impacted by certain one offs and price erosion in certain products. Mgmt. reiterated its FY26 guidance of 9-10% revenue growth however 75bps margin expansion vs 100 bps earlier. Our FY26E and FY27E EPS remain unchanged. API and generic business growth were muted in FY25; recovery will be gradual. Domestic formulation business, which now contributes 40% of revenues and ~55% of EBITDA, continued to outperform and grow at healthy levels. At CMP, the stock is trading at 16.5x EV/EBITDA and 27x PE on FY27E adjusted for Unichem stake. We maintain our ACCUMULATE with TP of Rs1,525/share; valuing at 18x EV/EBITDA.
Export formulation aided growth: IPCA’s revenues came in at Rs 23.1bn, up 10.3% YoY in line with our est. Domestic formulations growth was 10% YoY (we est 11%). Export formulation was up 14% YoY at Rs 4.5bn above our estimate. Branded business increased by 10% YoY while generics growth was higher by 19.2% YoY. Institutional businesses remained flat YoY. API revenues growth were at 13.3% YoY. Export API was up 28% YoY whereas domestic API declined by 18% YoY. Revenues from subsidiaries, including Unichem came at Rs5.6bn.
EBITDA miss led by lower Unichem margins: Consolidated gross margins improved 80bps YoY to 70%. There was forex loss to the tune of Rs 82mn booked under other expenses. Adj for forex; other expenses were 13% YoY. Staff cost was up 11% YoY. EBITDA adj for forex gain came in at Rs 4.2bn; vs our est of Rs4.37bn. OPM came in at 18.4%, flat YoY. Sharp decline in Unichem margins at 4.3% (down 1000bps QoQ). Adj for Unichem; EBITDA growth was at 16% YoY to Rs 4bn with OPM of 22.5%. Resultant PAT came in line at Rs2.33bn.
Key Conference Call Takeaways:
Domestic: Market share improved by 7bps to 2.08% in Q1FY26. Chronic segment grew 15.1% (vs 9.9% industry growth) whereas acute segment growth was 9.8% (vs 6.8% in industry). Most therapies outperformed expect cardiovascular therapy as growth slowed down to 8% due to reorganization and MR additions. Plans to add 3-4% MR’s annually mainly in specialty areas.
Unichem: US business grew by 12%, but overall margins declined due to loss of market share in profitable products and issues in Asia and Brazil markets. Asia fell due to Myanmar import license issues. Europe growth was aided by product shortages in UK markets. Additional one offs; made provision of Rs 120mn due to Euro appreciation. Took hit of Rs 100mn for shutdown of Ireland facility. Management expects market share recovery in lost products over the coming quarters. Unichem unlikely to post EBITDA growth in FY26. Earlier guidance of Rs3bn now unlikely due to Q1 weakness, but performance expected to improve in the remaining 3 quarters.
US: 4 products launched with visibility of adding $15-16mn in revenues. Additional filings and launches (4-5 products) are expected in the coming quarters. IPCA’s US business with Unichem is on profit-sharing model; no incremental manpower required at Unichem for handling IPCA’s portfolio.
Export formulations: Europe and LATAM remained strong growth contributors. Margins remained better in certain markets such as Canada, Australia, New Zealand. Expansion into Germany underway with a new subsidiary; product registrations in process.
Subsidiaries: Onyx Scientific witnessed first quarterly loss (~GBP 0.3 mn) after a decade of profits, due to slowdown in new project initiation by big pharma/virtual pharma amid funding issues. Pisgah continues to incur losses; injectable project expected to be commercially ready in 2HFY26, with improvement expected thereafter. Planned for 2-3 products launches in FY26.
Others: Dewas facility operational for three years, now filing for exports after recent inspection.
Guidance- IPCA expects 9%-10% top-line growth for FY26. Consolidated EBITDA margin improvement revised to 75bps (earlier 100bps). Domestic business margins are expected to expand due to productivity improvements.
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