HDFC Securities Institutional Equities has downgraded IPCA Labs to 'Neutral' with target price of Rs 620 as against current market price (CMP) of Rs 669 in its report.

IPCA Labs reported below estimated revenues as well as PAT for 2Q. Revenues at Rs 7.7 billion were down 7% YoY. EBIDTA margins dipped 1004/740bps YoY/QoQ led by a sharp decline in operating leverage due to lower revenues. Gross margins, however, remained strong (down only 100bps YoY and up 200bps QoQ) due to lower API revenues in the quarter.

IPCA missed the estimates on revenues due to an unexpected 65% decline in tender revenues. IPCA has also indicated a 20% price erosion in the malaria tender supplies which would impact the 2HFY15 revenues from the segment. 

Commenting on the investment rationale, the stock broker said, ''Moreover, IPCA also faced a blip in export API revenues (down 40% YoY) due to implementation of automation at the plants. The miss on revenues and lower operating leverage led to the lowest EBIDTA margins in the last 15 quarters at 17.3% in 2QFY15. IPCA has been facing issues on the regulatory front starting with the API plant at Ratlam, which has now extended to the Indore plant. Moreover, the inspection of the Silvassa plant is a cause of concern in the near term.''

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