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BUY Ipca Laboratories - Q4FY22 Result Update - Weak exports; gradual recovery

Posted On: 2022-06-18 12:21:40 (Time Zone: IST)

Mr. Param Desai Research Analyst at Prabhudas Lilladher Pvt. Ltd.

Quick Pointers:

- Guided 10-12% revenue growth and 22-22.5% OPM for FY23.

- Added 1200 MRs in domestic formulation biz; launching 4 new divisions.

IPCA Lab's (IPCA) Q4 performance was impacted by weak exports, however API, UK and branded generics issues should normalize from H2FY23, in our view. Domestic business (45% of total sales) remained strong and it will continue to outperform IPM. Strong API capabilities and diversified model have benefited IPCA in the current environment. Our FY23E and FY24E EBIDTA stands reduced by 3% yet PAT cut is higher by 7-10%, as management indicated 25% tax rate vs 22-23% earlier. We recommend 'Buy' rating with revised TP of Rs 1,085 based on 23x FY24E earnings.

In-line revenues; weak export sales: IPCA's sales grew 16% YoY at Rs 12.9bn, in line with our estimates. Domestic business grew strongly 27% YoY, while export formulation remained weak with 3% YoY (flat QoQ) growth. Institutional business was up by mere 5% YoY lower than our est, due to lower order offtake. Branded and generics business were up by 2% YoY. Export API declined by 19% QoQ due to lower sales from Sartans and sales return. Domestic API grew by 52% YoY. Revenue from subsidiaries in Q4 came in at Rs 1.2bn.

Healthy GM; higher other expenses EBITDA margins came at 17.2%- down 365bps QoQ impacted by negative operating leverage. There were one-time impairment charges to tune of Rs225mn. Adj for this OPM came in at 19%. Gross margins were at 66.9% (PL est 65%) in Q4- up 180bps QoQ, mainly on better product mix. There was forex loss of Rs20m. Adj for forex, overheads grew 14% YoY led by higher freight cost. Staff cost also grew by 16% YoY led by higher provision of incentives to field staff. PAT declined by 19% YoY to Rs 1.3bn vs our est of Rs1.4bn.

Key Concall takeaways: (1) Though company has resolved the issue of Azido impurity and Sartan, growth is expected to be gradual and should normalize from Q2FY23 (2) Guided for 68-69% GM in FY23 on standalone nos (3) Institution business continued to be impacted due to lower order offtake and guided for flat revenue growth in FY23. (4) UK business to remain muted in FY23; targeting more registrations and commercialization of product on own labels (so far done 7 -8 registrations out of 44). During Q4 sales from UK were down to Rs200mn vs Rs600mn in Q4FY21 (5) Ipca will be adding 1200 MRs to 6000 for domestic formulation biz in FY23, which may result in higher employee cost. Guided for 12-13% growth in Domestic formulation biz in FY23 (6) API biz- Benefit from Dewas plant commercialization will be seen from Q2FY24. Will regain Sartan biz gradually. Guided for 10% growth in API business in FY23 (7) Higher inventory as of FY22, in order to avoid any supply disturbances due to China issues (8) Minimal impact of Russia issues to branded generics biz; Guided for 20% growth in FY23.

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