Target: ₹ 1,190
CMP: ₹980.30
IPCA’s Q3-FY22 earnings was lower than our estimate. The reduced business in Sartans and muted business in the UK outweighed the robust performance in the Domestic Formulation (DF) segment.
We cut our EPS estimate by 11 per cent/10 per cent/10 per cent for FY22/FY23/FY24 to factor in: a gradual recovery in Losartan offtake; delay in product approvals in the UK market; higher raw material cost; and increased logistics cost.
IPCA continues to outperform the DF segment on the back of steady market share gain in key therapies. It intends to strengthen its MR force to sustain the growth momentum. The company is on track to build its API facility in Dewas to enhance its manufacturing capacity.
The management guided at a standalone y-o-y growth of about 20 per cent in Q4-FY22. API sales were impacted in Q3-FY22 due to re-working of the process validation aspect of Losartan. The API business is expected to stabilise from Q1-FY23.
The generic business in the UK remained impacted due to prolonged delays in approvals from the regulatory agency for the supply of products through its own distribution channel. It guided at an institutional Antimalarial revenue of ₹350 crore in FY22. The management expects an ₹50 crore benefit from a WPI-linked price hike in the portfolio under NLEM in FY24.
We value IPCA at 24x 12-month forward earnings to arrive at our target price of ₹1,190.