IPCA Laboratories Ltd
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IPCA Laboratories Ltd BUY Target Price Rs. 870 CMP Rs. 735 4QFY20E PE 20X Index Details IPCA Laboratories Ltd is a fully integrated pharmaceutical company. Due to Sensex 35,219 non-compliance with US FDA requirements, IPCA profits declined during Nifty 10,740 FY15-FY17. We believe the worst is over for IPCA and is likely to show Industry Pharma strong PAT growth in FY19E-20E due to (a) likely resolution of the USFDA issue leading to a revival of US sales (b) ramp up in the institutional antimalarial sales, and (c) improvement in profitability with margin expansion as remediation expenses will decline from FY19E. Scrip Details Mkt Cap (Rs cr) 9,261 US remediation issue likely to be resolved: We expect the USFDA import ban BVPS (Rs) 196.1 on the three plants viz., Ratlam, Pithampur and Piparia may be lifted by end of O/s Shares (Cr) 12.6 1HFY19E. IPCA has completed the remediation work and invited the USFDA for Av Vol (lacs) 2.88 the inspection of all the three plants. IPCA believes that it has taken necessary 52 Week H/L 742/ 400 corrective measures as per the USFDA requirements under the cGMP Div Yield (%) 0.2 regulations. We expect the revival of the US business soon after this resolution. The Health Canada has already inspected all the three plants and has given its FVPS (Rs.) 2.00 clearance. Shareholding Pattern Shareholders % Institutional business a growth driver for IPCA: The Global Fund had Promoters 46.13 stopped IPCA from selling Artemisinin-based Combination Therapy (ACTs) due Public 53.87 to the USFDA issues about the quality lapses in its plants. In November 2017, the Total 100.0 Global Fund selected IPCA as the supplier for antimalarial drugs for three years. IPCA vs. Sensex This would boost the institutional revenues by ~ Rs 280- 380 crs in FY19E and FY20E. We expect a 44% CAGR in revenues from FY17-FY20E as IPCA has got STOCK POINTER client approval to restart the supplies. EBITDA Margin to expand and return ratios to improve by FY20E: We expect the EBITDA margin expansion due to a reduction in remediation cost from Rs. 50-70 crs every quarter in FY18E to Rs. 2-3 crs till 1QFY19E. Remediation costs will stop completely from 2QFY19E. US business traction, new launches in the US, India and Institutional products, better performance from Europe/ U.K, Russia and ROW with currencies stability will drive ROCE and ROE to 16% by FY20E. We launch coverage with a BUY rating and a price target of Rs. 870, arrived at by applying 20x multiple to its EPS Rs. 43.6 for the year ending March- 20E. Our target price suggests a return of 18% from the Current Market Price (CMP) of Rs. 735 over the next 12 months. Key Financials (Rs. in Cr) EPS EPS Growth RoE ROCE P/E EV/EBITDA Y/E Mar Net sales EBITDA PAT (Rs.) (%) (%) (%) (x) (x) FY17 3,157 430 188 14.9 104 7.9 9.4 49.3 22.5 FY18E 3,203 460 252 19.9 34 9.7 10.4 36.9 21.1 FY19E 3,995 748 459 36.4 83 15.5 17.9 20.2 12.8 FY20E 4,551 874 550 43.6 20 15.9 18.7 16.9 10.7 nd - 1 of 24 - Wednesday, 2 May, 2018 This document is for private circulation and must be read in conjunction with the disclaimer on the last page. ❖ Company Background IPCA Laboratories Limited is pharmaceutical company incorporated in 1949. IPCA was promoted by a group of medical professionals and businessmen and was incorporated under the name 'The Indian Pharmaceutical Combine Association’ which was changed to IPCA Laboratories Limited in 1993. IPCA is a vertically integrated company with a diverse presence across geographies including India, Africa, Asia, Australia and the U.S. It is a fully integrated company producing branded and generic dosages, APIs (Active Pharmaceutical Ingredient) and intermediates. IPCA is one of the largest manufacturers of few APIs which they produce right from the basic stage. Their dosage business is backed by their own APIs. IPCA is one of the world’s largest manufacturers of atenolol (anti-hypertensive), chloroquine phosphate (antimalarial), furosemide (diuretic) and pyrantel salts (anthelmintic). It is gradually shifting towards the chronic segment therapeutics, reducing its dependency on selected therapeutic segments. IPCA operated in the following segments in FY17: 1) Branded dosage, accounted for 53% of the total revenues 2) Generics dosage, accounted for 22% of the total revenues 3) APIs and intermediates, accounted for 22% of the total revenues 4) Others, amounting to 3% of the total revenues. FY17 Sales break-up by segment FY17 Sales break-up 18% 23% 46% 32% 77% 5% India Dosage International Dosage Dosages APIs India APIs International Formulations Source: IPCA Labs, Ventura Research Source: IPCA Labs, Ventura Research - 2 of 24- Wednesday, 2nd May, 2018 This document is for private circulation and must be read in conjunction with the disclaimer on the last page. Manufacturing Facilities of IPCA Labs Facility Operational Since Dosage form Catering to Dosage U.K, Europe, S.A, New Zealand, Athal, Silvassa October 1995 Tablets & Capsules Canada and ROW Dehradun, Tablets, Cephalosporin: Tablets and India, Mauritus, Sri Lanka, Trinidad, May 2006 Uttaranchal injectables (dry powder) Africa, Jamaica, Russia & Yemen India, Institutional sale in Nepal & Jorthang, Sikkim June 2011 Tablets & Capsules Bhutan United Kingdom, Europe, South Betalactum derivatives – Tablets, Africa, Australia, Europe, Russia, Kandla, Gujarat December 1993 Capsules & Dry Syrups Gulf countries, Venezuela and ROW countries Piparia, Silvassa September 2004 Tablets & Capsules Canada & Australia High Potency Oral Solids Tablet Pithampur, Dhar October 2014 Europe & ROW countries dosage (Hormonal Products) United Kingdom, Europe, Canada, SEZ Indore, November 2008 Tablets & Capsules Australia, New Zealand, South Madhya Pradesh Africa and ROW countries. Tablets, Liquids, Injectables & India, South Africa, Russia and Ratlam December 1983 Ointments ROW countries Tarapur, September 2014 Tablets & Sachets India & ROW countries Maharastra API Ankleshwar, Gujarat 1988 API PMDA- Japan Aurangabad, 1999 APIs and Intermediates WHO- GMP Maharashtra Baroda Upcoming APIs Indore, Madhya 1994 APIs and Intermediates WHO- GMP Pradesh Mahad, 1989 Intermediates GMP Maharashtra Nandesari, Gujarat 2013 Hormones WHO GMP TGA-Australia, EDQM, Danish Ratlam, Madhya Regulatory Authority, PMDA-Japan, 1985 APIs Pradesh WHO-Geneva, US-FDA* *Under Import Alert Source: Company presentation, Ventura Research IPCA’s first manufacturing API commissioned in Ratlam, MP in 1985. At present the company has 16 manufacturing facilities for APIs and Dosages and is headquartered in Mumbai. IPCA has manufacturing facilities for producing APIs and dosages which are approved by drug regulatory authorities including the US-Food and Drug Administration (FDA), UK-Medicines and Healthcare Products Regulatory Agency (MHRA), South Africa- Medicines Control Council (MCC), Brazil-Brazilian National Health Vigilance Agency (ANVISA) and Australia-Therapeutic Goods Administration (TGA). - 3 of 24- Wednesday, 2nd May, 2018 This document is for private circulation and must be read in conjunction with the disclaimer on the last page. Top Brands of IPCA Labs Source: IPCA Labs, Ventura Research IPCA’s top 10 dosage brands are Zerodol (Aceclofenac and Combinations), Lariago (Chloroquine), HCQS (Hydroxychloroquine), Perinorm (Metoclopramide), Rapither (Artemotil), Tenoric (Chlorthalidone + Atenolol), Lumerax (Artemether + Lumefantrine), Etova (Etodolac), Malirid (Primaquine) and Folitrax (Methotrexate) which are sold in over 110 countries across the globe. The international and Indian business each account for ~50% of IPCA's income. - 4 of 24- Wednesday, 2nd May, 2018 This document is for private circulation and must be read in conjunction with the disclaimer on the last page. Milestones Year Events 1976 Started marketing of sugarcoated Chloroquine tablets, first time in India. 1978 Launched dosages of Metoclopramide under brand name 'Perinorm'® for the first time in India 1980 Launched dosages of Bromhexine for the first time in India R&D-API and R&D-Dosages development departments set up to provide technology-based 1981 products. 1982 First company after Eli Lilly to develop a pre-constituted dosages of Erythromycin Estolate 1984 Commencement of first API plant and second dosages plant in Ratlam First API Plant for manufacturing of Chloroquine Phosphate, set up at Ratlam and Production of 1986 API Atenolol, for the first time in India, commenced at Ratlam 1993 Acquired Hoechst India's dosages unit at Kandla 1994 Acquired API manufacturing plant from BDH Pharmaceuticals (a subsidiary of E-Merck) at Indore 1995 Commissioned modern dosages plant at Athal (Silvassa) 1996 Commissioned new API R&D Centre at Mumbai Athal, Dosages manufacturing unit received approval from UK-Medicines and Healthcare Product Regulatory Agency (MHRA) formerly known as UK- Medicines Control Agency (MCA). At the 1997 same time, Athal, Kandla and Ratlam Dosages manufacturing plants received the approval from MCC (Medicines Control Council) South Africa. 1999 First to introduce dosages of Hydroxychloroquine Sulphate under brand name 'HCQS' in India Acquired 'National Druggists (Pty) Ltd.' in South Africa. 'Ipca Pharma Nigeria Ltd.' incorporated in 2001 Nigeria 2002 Wholly owned subsidiary 'Laboratories Ipca Do Brasil Ltd.' incorporated in Brazil Launched marketing divisions for- Rheumatology Care and cardio- diabetology segment. Wholly 2003 owned subsidiaries 'Ipca Pharmaceuticals Inc.’ and ‘Ipca (UK) Ltd.' Incorporated in USA and UK respectively. Commissioned new Dosages manufacturing plant at Silvassa. Ratlam, API manufacturing facility 2004 inspected by US-FDA and the facility was found to be in compliance with global GMP requirements. Merger of Innotech Pharma Limited with Ipca in August, 2005. Acquired cardiac brand Isordil 2005 from Wyeth Lanched first dose of ACT combination for treatment on malaria, Entered into strategic alliance 2006 with Ranbaxy for the U.S market. Commencement of new dosages plant in Dehradun WHO prequalify Ipca dossier of Artesunate + Amodiaquine co-blister making Ipca the 2nd 2008 company in the world and the 1st Indian company to receive this prequalification.