1QFY2018 Result Update | Pharmaceutical
August 28, 2017
Ipca Laboratories
BUY
CMP
`414
Performance Highlights
Target Price
`540
Y/E March (` cr)
1QFY2018
4QFY2017
% chg (QoQ)
1QFY2017
% chg (YoY)
Investment Period
12 Months
Net sales
713
666
7.1
855
(16.6)
Other income
6
5
18.4
5
26.9
Stock Info
Operating profit
22
68
(68.2)
120
(82.0)
Sector
Pharmaceutical
Tax
(1)
(19)
-
29
-
Market Cap (` cr)
5,228
Adj. net profit/(loss)
(20)
44
-
48
-
Net Debt (` cr)
357
Source: Company, Angel Research
Beta
0.8
IPCA Labs posted results lower than expected for 1QFY2018 mainly on the OPM
52 Week High / Low
656/400
front, which lead the company to report losses during the period. In sales, the
Avg. Daily Volume
13,073
company posted sales of `713cr, a yoy de-growth of 16.6%, but mostly in-line
Face Value (`)
2
with the expected `700cr. On EBITDA front, the company posted EBITDA of 3.0%
BSE Sensex
31,596
(v/s. 8.0% expected) v/s. 14.0% in 1QFY2017. Consequently, the company
Nifty
9,857
posted a loss of `20cr (v/s. PAT of `21cr expected) v/s. PAT of `48cr in
Reuters Code
IPCA.BO
1QFY2017. We maintain our BUY.
Bloomberg Code
[email protected]
Results below expectations: On the sales front, the company posted sales of
`713cr, down 16.6% yoy v/s. `700cr expected. Formulations at `531cr were
Shareholding Pattern (%)
down 16% and API at `171cr posted a yoy de-growth of 16%. On the EBITDA
front, the company posted EBITDA of 3.0% (v/s. 8.0% expected) v/s. 14.0% in
Promoters
46.1
1QFY2017. Consequently, net loss came in at `21cr (v/s. PAT of `21cr expected)
MF / Banks / Indian Fls
24.9
v/s. PAT of `48cr in 1QFY2017. The other income came in at `6.0cr v/s. `5.0cr
FII / NRIs / OCBs
16.9
in 1QFY2017.
Indian Public / Others
12.1
Outlook and Valuation: We expect net sales to post a CAGR of 11.0% to
`3,952cr and EPS to register a CAGR of 24.7% to `24.0 over FY2017-19E. The
Abs. (%)
3m 1yr 3yr
company’s financials will be impacted by the USFDA import alert on its facilities.
Sensex
6.5
12.6
19.5
While the problems are likely to persist for a while, we expect the company’s
Ipca
(30.3)
(23.8)
(43.6)
performance to witness a gradual pick-up going forward; mostly in FY2019E.
Given the inexpensive valuations, we maintain our Buy rating.
3-Year Daily Price Chart
Key financials (Consolidated)
1,000
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
800
Net sales
2,844
3,211
3,532
3,952
% chg
600
(8.7)
12.9
10.0
11.9
Adj. Net profit
133
195
158
303
400
% chg
(47.6)
46.0
(18.7)
91.2
EPS
10.6
15.4
12.5
24.0
200
EBITDA margin (%)
10.6
13.9
11.3
15.3
P/E (x)
39.2
26.9
33.0
17.3
Source: Company, Angel Research
RoE (%)
5.9
8.2
6.3
11.0
RoCE (%)
4.1
8.7
6.6
12.4
P/BV (x)
2.3
2.1
2.0
1.8
EV/Sales (x)
Sarabjit Kour Nangra
2.0
1.8
1.6
1.3
EV/EBITDA (x)
+91 22 39357800 Ext: 6806
18.5
12.6
13.8
8.8
[email protected]
Source: Company, Angel Research; Note: CMP as of August 24, 2017
Please refer to important disclosures at the end of this report
1
Ipca Laboratories | 1QFY2018 Result Update
Exhibit 1: 1QFY2018 - Standalone performance
Y/E March (` cr)
1QFY2018
4QFY2017
% chg (QoQ)
1QFY2017
% chg (YoY)
FY2017
FY2016
% chg (yoy)
Net sales
713
666
7.1
855
(16.6)
3157
2843
11.0
Other income
6
5
18.4
5
26.9
22
28
(19.7)
Total income
719
671
7.2
860
(16.3)
3179
2871
10.7
Gross profit
445
434
2.6
541
(17.7)
2049
1796
14.1
Gross margins (%)
62.5
65.2
63.3
64.9
63.2
Operating profit
22
68
(68.2)
120
(82.0)
430
274
57.3
Operating margin (%)
3.0
10.2
14.0
13.6
9.6
Interest
6
4
26.8
6
(9.0)
23
29
(18.4)
Depreciation
43
43
1.3
42
2.8
171
161
6.1
PBT
(21)
26
(182.5)
76
-
258
111
131.7
Provision for taxation
(1)
(19)
(94.8)
29
70
19
269.3
Less: Excep. Items (gains)/ loss
0
0
0
0
0
Reported Net profit
(20)
44
-
48
-
188
93
103.5
Adj. Net profit/(loss)
(20)
44
-
48
-
188
93
103.5
EPS (`)
-
3.5
3.8
14.9
7.3
Source: Company, Angel Research, FY numbers are consolidated
Exhibit 2: 1QFY2018 - Actual Vs Angel estimates
(` cr)
Actual
Estimates
Variation (%)
Net sales
713
700
1.9
Other income
6
17
(64.4)
Operating profit
22
56
(61.6)
Interest
6
4
26.8
Tax
(1)
5
-
Adjusted Net profit/(loss)
(20)
21
-
Source: Company, Angel Research
Revenue mostly in-line with our estimates down 16.6% yoy: The formulation sales
(`531cr) posted a yoy de-growth of 16.0%, while API (`171cr) posted a yoy de-
growth of 16.0%.
Domestic formulation sales (`295cr) posted a yoy de-growth of 17%, while exports
formulation sales (`236cr) posted a yoy de-growth of 14.0%. Domestic API sales
(`36cr) posted a de-growth of 4% yoy and export API sales posted yoy de-growth
of 19% yoy to end the period at `135cr.
Overall, for 1QFY2018, exports contributed 52.8% to the top-line, while the
domestic business contributed the rest. The overall contribution of formulations was
at 75.5% of total sales during the quarter. This was against the 75.5% in
1QFY2017.
August 28, 2017
2
Ipca Laboratories | 1QFY2018 Result Update
Exhibit 3: Domestic sales trend
440
404
400
345
360
335
320
295
277
280
240
200
160
120
80
35
38
34
36
29
40
0
1QFY2017 2QFY2017 3QFY2017 4QFY2017
1QFY2018
Formulation
API
Source: Company, Angel Research
Exhibit 4: Exports sales trend
320
275
264
280
233
236
224
240
200
166
146
160
128
125
120
91
80
40
0
1QFY2017 2QFY2017 3QFY2017 4QFY2017
1QFY2018
Formulation
API
Source: Company, Angel Research
OPM dips yoy, lower than expected: On EBITDA front, the company posted EBITDA
of 3.0% (v/s. 8.0% expected) v/s. 14.0% in 1QFY2017. While the GPM’s were flat,
(which came in at 62.5% in 1QFY2018 v/s. 63.3% in 1QFY2017), lower sales and
other expenses, which rose by 2.8% yoy aided the dip in the OPM.
August 28, 2017
3
Ipca Laboratories | 1QFY2018 Result Update
Exhibit 5: OPM trend
18.0
15.0
14.0
12.8
12.0
13.9
10.2
9.0
6.0
3.0
3.0
0.0
1QFY2017 2QFY2017 3QFY2017 4QFY2017 1QFY2018
Source: Company, Angel Research
Reported net loss: Consequently, the Adj. net loss came in at `20cr (v/s. `21cr PAT
expected) v/s. PAT of `48cr in 1QFY2017. The other income came in at `6.2cr v/s.
`4.9cr in 1QFY2017.
Exhibit 6: Adj. Net profit trend
70
55
48
50
44
44
30
10
-10
1QFY2017 2QFY2017 3QFY2017 4QFY2017 1QFY2018
-30
(20)
Source: Company, Angel Research
Concall Highlights
Management expects FY2018 revenue to grow in the range of 8-10% yoy.
Invite for Pithampur inspection is expected by September 2017. Currently
>90% of ANDAs are linked to API from Ratlam. Given that the remediation
process at Ratlam will only get over by end October 2018, we do not expect
full regulatory resolution in the next 12 months.
The company expects an impact of ~`15cr on EBITDTA due to GST.
Investment arguments
August 28, 2017
4
Ipca Laboratories | 1QFY2018 Result Update
Domestic formulations business - the cash cow: Ipca has been successful in
changing its business focus to the high-margin chronic and lifestyle segments
from the low-margin anti-malarial segment. The chronic and lifestyle
segments comprising CVS, anti-diabetics, pain-management, CNS and
dermatology products constitute more than 50% of the company’s domestic
formulation sales. The Management has ramped up its field force significantly
with addition of divisions in the domestic formulations segment, taking the
current total strength to nearly 4,000 MRs. With an expected pick-up in sales
in 2HFY2018 (after the GST impact reduces), we expect the domestic
formulation business to grow at a CAGR of 11.9% over FY2017-19E.
Exports currently under pressure; should pickup only by FY2019: On the
formulations front, Ipca has been increasing its penetration in regulated
markets viz. Europe and the US, by expanding the list of generic drugs backed
by its own API. In the emerging and semi-regulated markets, the company
plans to focus on building brands in the CVS, CNS, pain-management and
anti-malarial segments along with tapping new geographies. On the API front,
where the company is among the low-cost producers, it is aggressively
pursuing supply tie-ups with pharmaceutical MNCs.
After the USFDA inspection at the company’s APl manufacturing facility at
Ratlam (Madhya Pradesh), the company has received certain inspection
observations in Form 483, consequent to which the company had voluntarily
decided to temporarily suspend API shipments from this manufacturing facility
to the US markets until the issue is resolved. However, the Form 483 was
converted into an import alert, except for 4 APIs, which constituted around
45% of US sales in FY2014.
The company’s Silvassa and Indore facilities (formulation facilities) are also
under import alert. IPCA Labs has already invited the USFDA for Piparia
inspection. Invite for Pithampur inspection is expected by September 2017.
Currently >90% of ANDAs are linked to API from Ratlam. Given that the
remediation process at Ratlam will only get over by end October 2018, we do
not expect full regulatory resolution in the next 12 months. Thus, FY2019
should see some revival. We expect exports to grow at a CAGR of 10.0% over
FY2017-19E.
Outlook & Valuation:
We expect net sales to post a CAGR of 11.0% to `3,952cr and EPS to register a
CAGR of 24.7% to `24.0cr over FY2017-19E. The company’s financials will be
impacted by the USFDA import alert on the Ratlam, Indore and Silvassa facilities.
While the problems are likely to persist for a while, we expect a gradual pick-up in
performance only by FY2019. However, given the valuations, we maintain our buy
rating on the stock with a target price of `540.
August 28, 2017
5
Ipca Laboratories | 1QFY2018 Result Update
Exhibit 7: Key Assumptions
FY2018E
FY2019E
Sales growth (%)
10.0
11.9
Domestic growth (%)
10.0
10.0
Exports growth (%)
10.0
14.0
Operating margins (%)
11.3
15.3
R&D Exp ( % of sales)
4.0
4.0
Capex (` cr)
200
200
Source: Company, Angel Research
Exhibit 8: One-year forward PE band
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
10x
15x
20x
25x
Source: Company, Angel Research
Exhibit 9: Recommendation summary
Company
Reco.
CMP Tgt Price Upside
FY2019E
FY17-19E
FY2019E
(`)
(`)
(%) PE (x) EV/Sales (x)
EV/EBITDA (x)
CAGR in EPS (%) RoCE (%) RoE (%)
Alembic Pharma
Buy
510
600
17.4
18.7
2.1
10.9
12.8
24.3
20.6
Aurobindo Pharma Accumulate
733
823
12.3
14.2
2.2
10.0
14.2
25.3
22.7
Cadila Healthcare
Reduce
495
426
(13.9)
23.3
3.8
18.4
21.0
17.3
22.9
Cipla
Sell
573
458
(20.1)
23.8
2.5
15.3
38.7
10.9
13.1
Dr Reddy's
Accumulate
2,088
2,219
6.3
18.8
2.1
11.7
23.6
11.2
13.0
Dishman Pharma
Under Review
301
-
-
18.9
1.3
10.1
(7.2)
2.9
2.5
GSK Pharma
Neutral
2,385
-
-
40.7
5.5
30.5
30.6
28.9
26.5
Indoco Remedies
Sell
190
153
(19.6)
14.9
1.5
10.0
23.0
11.3
15.6
Ipca labs
Buy
414
540
30.3
17.3
1.3
8.8
24.7
12.4
11.0
Lupin
Buy
992
1,467
47.8
14.9
2.0
8.7
8.2
20.5
17.5
Sanofi India*
Neutral
4,007
-
-
26.1
2.7
16.0
9.2
23.9
25.8
Sun Pharma
Buy
483
558
16.0
19.5
3.2
14.3
8.0
12.3
15.2
Source: Company, Angel Research; Note: *December year ending
August 28, 2017
6
Ipca Laboratories | 1QFY2018 Result Update
Company background
Formed in 1949, Ipca Laboratories is a market leader in the anti-malarials and
rheumatoid arthritis segments. The company is a notable name in the domestic
formulations category with 150 formulations across major therapeutic segments
like cardiovascular (CVS), anti-diabetes, anti-malaria, pain-management (NSAID),
anti-bacterial, central nervous system (CNS) and gastro-intestinal. The company
has 7 production units, which are approved by most of the discerning regulatory
authorities including USFDA, UKMHRA, Australia-TGA, South Africa-MCC and
Brazil-ANVISA.
August 28, 2017
7
Ipca Laboratories | 1QFY2018 Result Update
Profit & loss statement (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017
FY2018E
FY2019E
Gross sales
3,232
3,157
2,891
3,262
3,588
4,016
Less: Excise duty
33
40
47
51
57
63
Net Sales
3,199
3,117
2,844
3,211
3,532
3,952
Other operating income
82
40
41
23
23
23
Total operating income
3,282
3,157
2,885
3,233
3,554
3,975
% chg
16.7
(3.8)
(8.6)
12.1
9.9
11.8
Total expenditure
2,471
2,613
2,543
2,766
3,132
3,347
Net raw materials
1,137
1,155
1,058
1,110
1,221
1,367
Other mfg costs
250
277
253
286
320
358
Personnel
498
565
627
696
778
871
Other
587
616
606
674
812
751
EBITDA
728
504
301
445
400
605
% chg
29.1
(30.8)
(40.2)
47.7
(10.1)
51.4
(% of Net Sales)
22.8
16.2
10.6
13.9
11.3
15.3
Depreciation & amortisation
103
180
172
173
187
199
EBIT
625
324
129
272
213
406
% chg
31.1
(48.1)
(60.2)
110.8
(21.7)
90.8
(% of Net Sales)
19.5
10.4
4.5
8.5
6.0
10.3
Interest & other charges
27
28
32
24
24
18
Other Income
22
28
17
-
-
-
(% of PBT)
3.2
7.8
10.9
-
-
-
Recurring PBT
703
364
155
270
211
411
% chg
35.9
(48.2)
(57.5)
74.6
(21.9)
95.0
Extraordinary expense/(Inc.)
72.2
-
39.5
-
-
-
PBT (reported)
631
364
115
270
211
411
Tax
152.4
101.9
18.6
67.5
52.8
102.8
(% of PBT)
24.2
28.0
16.1
25.0
25.0
25.0
PAT (reported)
478
262
97
203
158
309
Add: Share of earnings of asso.
0
(5)
(3)
(8)
-
-
PAT after MI (reported)
478
254
94
195
158
303
ADJ. PAT
495
254
133
195
158
303
% chg
45.6
(48.6)
(47.6)
46.0
(18.7)
91.2
(% of Net Sales)
14.9
8.2
3.3
6.1
4.5
7.7
Basic EPS (`)
39.2
20.1
10.6
15.4
12.5
24.0
Fully Diluted EPS (`)
39.2
20.1
10.6
15.4
12.5
24.0
% chg
45.6
(48.6)
(47.6)
46.0
(18.7)
91.2
August 28, 2017
8
Ipca Laboratories | 1QFY2018 Result Update
Balance sheet (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017
FY2018E FY2019E
SOURCES OF FUNDS
Equity share capital
25
25
25
25
25
25
Reserves & surplus
1,934
2,183
2,281
2,430
2,574
2,861
Shareholders Funds
1,960
2,208
2,306
2,455
2,599
2,887
Minority interest
-
-
-
-
-
-
Total loans
603
829
595
529
450
250
Other Long Term Liabilities
1
-
-
-
-
-
Long Term Provisions
15
22
23
26
26
26
Deferred tax liability
147
174
169
170
170
170
Total Liabilities
2,726
3,233
3,094
3,181
3,245
3,333
APPLICATION OF FUNDS
Gross block
1,882
2,626
2,760
2,914
3,114
3,314
Less: Acc. depreciation
578
758
930
1,103
1,290
1,489
Net Block
1,303
1,868
1,830
1,811
1,824
1,825
Goodwill
50
34
102
102
102
102
Capital work-in-progress
165
165
165
165
165
165
Investments
9
16
96
136
136
136
Long Term Loans and Adv.
71
115
108
125
134
150
Current assets
1,602
1,614
1,522
1,620
1,790
1,969
Cash
76
125
162
36
44
21
Loans & advances
67
47
38
43
50
50
Other
1,459
1,442
1,322
1,542
1,696
1,898
Current liabilities
485
579
729
779
905
1,013
Net Current Assets
1,117
1,035
793
842
884
956
Other Non current Assets
9
-
- .
Total Assets
2,725
3,233
3,094
3,181
3,245
3,333
August 28, 2017
9
Ipca Laboratories | 1QFY2018 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017
FY2018E
FY2019E
Profit before tax
631
364
115
270
211
411
Depreciation
103
180
172
173
187
199
(Inc)/Dec in working capital
(193)
88
286
(193)
(43)
(110)
Direct taxes paid
(152)
(102)
(19)
(68)
(53)
(103)
Cash Flow from Operations
389
530
555
183
302
397
(Inc.)/Dec.in fixed assets
(380)
(745)
(134)
(154)
(200)
(200)
(Inc.)/Dec. in Investments
-
-
-
-
-
-
Cash Flow from Investing
(380)
(745)
(134)
(154)
(200)
(200)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
83
232
(232)
(63)
(79)
(200)
Dividend Paid (Incl. Tax)
(74)
(15)
(15)
(15)
(15)
(15)
Others
1
47
(69)
(77)
-
(6)
Cash Flow from Financing
10
264
(316)
(155)
(94)
(221)
Inc./(Dec.) in Cash
18
49
37
(126)
8
(23)
Opening Cash balances
58
76
125
162
36
44
Closing Cash balances
76
125
162
36
44
21
August 28, 2017
10
Ipca Laboratories | 1QFY2018 Result Update
Key Ratios
Y/E March
FY2014
FY2015
FY2016
FY2017
FY2018E
FY2019E
Valuation Ratio (x)
P/E (on FDEPS)
10.6
20.6
39.2
26.9
33.0
17.3
P/CEPS
8.7
12.1
17.1
14.2
15.2
10.4
P/BV
2.7
2.4
2.3
2.1
2.0
1.8
Dividend yield (%)
1.2
0.2
0.2
0.2
0.2
0.2
EV/Sales
1.8
1.9
2.0
1.8
1.6
1.3
EV/EBITDA
7.8
11.6
18.5
12.6
13.8
8.8
EV / Total Assets
2.1
1.8
1.8
1.8
1.7
1.6
Per Share Data (`)
EPS (Basic)
39.2
20.1
10.6
15.4
12.5
24.0
EPS (fully diluted)
39.2
20.1
10.6
15.4
12.5
24.0
Cash EPS
47.4
34.4
24.2
29.1
27.3
39.7
DPS
5.0
1.0
1.0
1.0
1.0
1.0
Book Value
155.3
175.0
182.7
194.6
205.9
228.7
DuPont Analysis
EBIT margin
19.5
10.4
4.5
8.5
6.0
10.3
Tax retention ratio
75.8
72.0
83.9
75.0
75.0
75.0
Asset turnover (x)
1.4
1.1
1.0
1.1
1.1
1.2
ROIC (Post-tax)
20.2
8.2
3.6
6.8
5.1
9.4
Cost of Debt (Post Tax)
3.6
2.9
3.7
3.2
3.8
3.8
Leverage (x)
0.3
0.3
0.3
0.2
0.2
0.1
Operating ROE
24.9
9.8
3.6
7.4
5.3
10.1
Returns (%)
RoCE (Pre-tax)
25.3
10.9
4.1
8.7
6.6
12.4
Angel RoIC (Pre-tax)
27.7
12.0
4.5
9.5
7.1
13.2
RoE
28.2
12.2
5.9
8.2
6.3
11.0
Turnover ratios (x)
Asset Turnover (Gross Block)
1.9
1.4
1.1
1.1
1.2
1.2
Inventory / Sales (days)
88
103
111
91
92
90
Receivables (days)
48
46
46
49
50
49
Payables (days)
45
43
90
61
57
62
WC cycle (ex-cash) (days)
106
113
97
81
85
81
Solvency ratios (x)
Net debt to equity
0.3
0.3
0.2
0.2
0.2
0.1
Net debt to EBITDA
0.7
1.4
1.4
1.1
1.0
0.4
Int. Coverage (EBIT / Int.)
23.3
11.4
4.1
11.3
8.7
23.2
August 28, 2017
11
Ipca Laboratories | 1QFY2018 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL
and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a
registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
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contrary view, if any.
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sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
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Disclosure of Interest Statement
Ipca Laboratories
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
August 28, 2017
12