Published On:June 23 2014
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Buy Ipca Labs; target of Rs. 1030: Religare Capital.
'Our meeting with IPCA's CMD Premchand Godha has reinforced our positive view on the company. Key takeaways: (a) IPCA sees immense potential in the US and will continue to invest in capacities (doubling Indore SEZ, Piparia) and pipeline development (12-15 ANDA filings p.a.), (b) the recent AMFM tender win increases visibility for the Institutional business, with scope to expand beyond anti-malarials (diarrhoea, dysentery), (c) R&D spend is likely to increase to 6 percent of sales (vs. 4.5 percent now) led by forays in new therapies & differentiated filings. BUY.' 'Strong cost control and vertical integration will ensure cost competitiveness for IPCA in the US market. While the Indore SEZ would suffice for the next two years, capacity expansion at Piparia and Indore would address long-term needs. The impending merger of its largest partner in the US (Ranbaxy) may affect IPCA's near-term prospects, but new approvals (42 ANDA filed/8 launched) and ramp-up in utilisation would help double US sales to Rs 4.7bn by FY16E (Rs. 2.26bn in FY14). The AMFM anti-malarial tender win worth 30 percent of 48mn treatments p.a. provides revenue visibility of US$ 45mn p.a. for FY15-FY16 (vs. US$ 28.3mn in FY14). Even if the rest of the Institutional business (US 45mn last year) remains flat, it could still grow at 15-20 percent in FY15 with this win. New competition (Strides, Macleods) is unlikely to have much impact for the next two years and the Artesunate injectible launch in 2016 (2nd player) would fuel long-term growth.'