For 2QFY2016, IPCA Laboratories (IPCA) posted in line sales while the net profit
came in lower than our estimates. The company posted a 4.7% yoy decline in
sales to Rs739cr V/s Rs750cr expected, on back of domestic and exports posting a
dip of 2.3% yoy and 6.9% yoy, respectively. On the operating front, the EBITDA
margin came in at 10.6% V/s 11.4% expected and V/s 16.7% in 2QFY2015,
owing to lower than expected sales. Thus, the Adj. net profit came in at Rs31cr V/s
Rs41cr expected and V/s Rs68cr in 2QFY2015, a yoy dip of 54.3%. While the
current performance of the company is being impacted due to its key plants being
under the USFDA scanner, we believe once out of it, the company can bounce back
to its normalized ROE of 25%. Thus, we maintain our Buy on the stock.
Results lower than expectations: The company, posted an 4.7% de-growth in sales
to end the period at Rs739cr V/s Rs750cr expected and Rs775cr in 2QFY2015, on
back of domestic and exports posting a dip of 2.3% and 6.9% respectively. In
domestic markets (Rs364cr), posted a dip of 2.3% yoy, mainly on back a tepid
formulation sales (Rs331cr), a yoy growth of 0.9%.In exports (Rs375cr), a yoy dip
of 6.9%, on back of dip in formulation exports (227cr) a dip of 25.7% yoy, while
API exports (Rs147cr) posted a yoy growth of 52.9%. On operating front, the
EBITDA margins came in at 10.6% V/s 11.4% expected V/s 10.0% in 2QFY2015,
on back of lower than expected sales during the quarter. Thus, the Adj. net profit
came in at Rs31cr V/s Rs41cr expected and Rs68cr in 2QFY2015, a yoy dip of 54.3%.
Outlook and Valuation: We expect net sales to post a 12.0% CAGR to Rs3,909cr,
and EPS to register a 17.9% CAGR to Rs28.0 over FY2015–17E. The companys
financials will be impacted by the USFDA import alert on the Ratlam, Indore and
Silvassa facilities. For 2HFY2016, the Management has given a guidance of 16%
yoy growth in sales. We recommend a Buy on the stock, given the valuations.
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