Sushil Finance is bullish on Ipca Labs and has recommended buy rating on the stock with a target of Rs 369 in its November 2, 2011 research report.

“Ipca Labs has reported excellent numbers for the quarter ended Sept’11, however the forex loss is a dampener on the bottom line. The company on the revenue front has registered a growth of 20.3% to Rs. 6235 mn with PAT witnessing a de-growth of 17.1% to Rs. 779.6 mn mainly on the back of a forex loss of Rs. 271.5 mn as against a forex gain of Rs. 288.4 mn in Q2FY11.”

Revenues grew by 20.3% YoY from Rs. 5183 mn in Q2FY11 to Rs. 6235 mn in Q2FY12. The company’s domestic business which contributes ~44% to the sales of the company registered a sluggish growth of 1% whereas the export business registered a strong growth of 48.8%. Domestic formulations grew a mere 3.3% from Rs. 2219.4 mn in Q2FY11 to Rs. 2292.1 mn in Q2FY12 mainly on account of lower business in the seasonal anti-malarial space, restructuring of top brands and industry wide slowdown in acute therapies. In H1FY12 it registered a growth of 7%, which is attributable to the underperformance of its antimalarial (-1% yoy), anti-bacterial (-14% yoy) and dermatology (-6% yoy) divisions. Export formulations increased to Rs. 2065.3 mn in Q1FY12 from Rs. 1748.8 mn in Q2FY11 mainly on the back of a strong growth of 243% in its institutional business and a 20.5% growth in its generic portfolio whereas its branded portfolio remained flatish at Rs. 444 mn. On the Generics side, formulations grew (20.5%) on the back of a 73% growth in the US market and a 49% growth in the Australia/NZL region combined whereas Europe registered a 15% growth. On the Branded side, markets such as LatAm (80.5% yoy growth), S.E Asia (58.9% yoy growth) & W Africa (26.4% yoy growth) recorded good growth whereas CIS de-grew by 21.2% and Middle East de-grew by 21.3% majorly from declines in Sudan & Yemen, where the company has not been promoting sales due to political unrest.”

“Ipca clocked API revenues to the tune of Rs. 1283 mn, a growth of 9.4% yoy with the export API posting a growth of 21.3% yoy, while the domestic API de-grew by 12.7% yoy on the back of capacity constraints.  Operating profit reported growth of 33.9% YoY from Rs. 1180 mn in Q2FY11 to Rs. 1580 mn in Q2FY12; whereas on account of strong export growth as well as lower employee costs on the back of reversal of sales incentives worth Rs. 60 mn, the EBIDTA margin came in at 25.3% v/s 22.8% in Q2FY11. Reported Net Profit de-grew by 17.1% YoY from Rs. 940.1 mn to Rs. 779.6 mn in Q2FY12 whereas margins were at 12.5% mainly on the back a forex loss of Rs. 271.5 mn excluding which margins for the quarter came in at 16.9%. The company had also registered a forex gain of Rs. 288.4 mn in Q2FY11.”

“Ipca’s generics business coupled with the tender business continued to be the engine driving the growth in the current quarter. With the domestic business expected to pick up on a gradual basis, we believe robust anti-malarial tender business and generics export business to compensate for the slow domestic growth to some extent. We thereby maintain our estimates & upgrade our rating to BUY on the the back of the recent fall in the stock price with a target price of Rs 369 (based on 15x its FY13E EPS of Rs. 24.6),” says Sushil Finance research report.