Target: ₹1,950

CMP: ₹1,702

After three years of earnings deterioration, IPCA Laboratories is well-poised to deliver strong earnings growth over FY24-27.

With broad-based growth in volume and pricing, IPCA has been able to outperform the industry significantly in the domestic formulation (DF) market, with 15 per cent y-o-y growth in MAT Aug’24 and a 15 per cent CAGR in MAT Aug’21-24.

IPCA is making efforts to augment its export prospects through new launches and market share gains in generics exports. It is also working to drive synergies from the Unichem acquisition.

After a muted performance in the US generics business over the last 10 years due to compliance issues, IPCA is geared up to revive its US business through improving USFDA compliance, new launches over the next 6-8 months, and synergies from the Unichem acquisition.

Considering a 29 per cent earnings CAGR and an anticipated improvement in the return ratio to ~17% over FY24-26, we value IPCA at 38x 12M forward earnings to arrive at a TP of ₹1,950. We upgrade IPCA to BUY as we factor in better operational efficiency, a revival in US business, synergies from the Unichem acquisition, and well-established DF business.