IPCA Labs - Motilal Oswal

IPCA LabsAPI business – Vadodara facility to expand capacities; expect single digitgrowth over next 2-3 years• IPCA has received environmental clearance to build API plant at Vadodara. Thecompany is expected to start work very soon. In FY13, capex on this facility istargeted at ~INR1.5b.• The facility is expected to commission only in FY14 after which the company canstart supplying APIs in domestic market and in semi-regulated markets.However, it will take another 2-3 years to start supplying APIs to regulatedmarkets as the facility will have to get approvals from regulatory agencies.• We expect the business to report single digit growth till such time.Valuation & outlook• IPCA is one of the better managed pharma companies in India with strongpositioning in domestic formulation business and growing presence abroad. Thecompany is likely to sustain its high profitability backed by backward integrationcapabilities in API manufacturing.• The performance of the company will be driven by all the major businesssegments like domestic formulations, international formulations andinstitutional supplies.• Expect 27% earning CAGR: We expect IPCA to clock FY12-14 PAT and EPS CAGRof 27% on the back of 16% revenue CAGR coupled with margin expansion.• EBITDA is expected to record 18.6% CAGR for FY12-14. EPS growth is higher thanEBITDA growth due to absence of large forex losses reported in FY12.• Further, despite INR5b capex over FY13-14 (to sustain growth), the company islikely to record healthy return ratios and low gearing.• The stock is currently valued at 11.2x FY13E EPS and 9.5x FY14E EPS. The stocktrades at 25-50% discount to its historic and peer valuation.• Reiterate Buy with target price of INR500 (14x FY14E EPS).6 June 2012 4