Emkay Global Financial Services has reiterated `Buy` on Ipca Laboratories with a price target of Rs 420 as against the current market price (CMP) of Rs 299 in its report dated Jan. 31, 2012. The broking house gave the following rationale:
Strong top-line & bottom-line growth due to INR depreciation & institutional business:
> Export formulations (contributed 52%) which grew by 73% to Rs 2.8 billion on back of strong growth in anti-malarial, Generic and Promotional business segments.
> Domestic formulations (contributed 25%) grew at a lower rate of 6% YoY to Rs 1.4 billion in Q3FY12
> Gross and EBITDA margins improved by 235bps and 550bps YoY to 61% and 25% respectively led by INR dep and strong uptake in institutional business
> Adjusted for forex loss of Rs400mn, PAT grew by 88% to Rs 1.04 billion
Future growth drivers:
> Indore SEZ facility was inspected in Jan 2012 without any observations. USFDA approval may trigger 5-6 ANDA approvals. This facility has the peak revenue potential of Rs 4 billion over the next 2-3 years
> Management has guided for 15% growth in the domestic business in Q4FY12 and 13-15% in FY13E. Operating margins are expected to improve once the additional field force becomes productive
> Operating margins are likely to be in the range of 22-23% in FY13E due to operating leverage from Indore SEZ and domestic business coming back to normalcy.
We expect Ipca to report 22% growth in revenues in FY12E and 18% growth in FY13E. EBIDTA margins are expected to increase from 19.8% in FY11 to 22.5% in FY12E and 21.5% in FY13E. Earnings will grow by 28% CAGR over FY11-13E. Based on strong growth in export formulations, we revise our estimates upwards for FY12 and FY13. Reiterate Buy with a revised target price of Rs 420 (14xFY13E earnings of Rs 30). At CMP, IPCA trades at 11x FY12E and 10x FY13E EPS.
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