The USFDA has imposed import alerts on Silvassa and Indore (formulation facilities for US) for IPCA. However, Hydroxychloroquine Sulfate and Propanolol Hydrochloride, which accounted for around 45% of its total US sales in FY2014, are exempted from the ban. With this all the key US facilities of the company are under USFDA import alert.
Commenting on the same, ICICIdirect, said, ''Back to back import alerts for the three facilities besides observations from the WHO have put a question mark on the regulatory compliance capability of the company, which was hitherto unquestionable. We had already emphasised in our earlier reports that the USFDA issues remains the most important catalyst for the company's multiple. In this backdrop, performances from other major segments such as Indian formulations, institutional exports and branded formulation exports will hold the key. However, we do not rule out a further downward revision as suspense remains over the execution of the institutional business. Resolution of the Ratlam, Silvassa and Indore SEZ will continue to remain major overhangs in the near term. We maintain hold.''
Sarabjit Kour Nangra, VP research, pharma, Angel Broking, said, ''Whilst we are negatively surprised by the import alerts, we believe that now IPCA will have to follow the measures laid out by the US FDA to resolve the issue. In the past, the time taken by Indian companies to resolve issues has varied from few months to 2-3 years, depending on the company and the kind of issue raised by the USFDA. Currently we are unsure about the timelines for the same. After the earlier downgrades, we have pruned our estimates further. We have cut the FY2016 EPS numbers by 20%. Thus at CMP, the stock trades at 20xFY2016E earnings. Though the timelines of the resolve are uncertain, we believe the size of the company, and low dependence on US, along with Indian geographies outperforming the market growth, the company can easily sustain a 15-18% growth in sales and hence a significant downside is limited. Any downside can be used by investors to buy into the stock, with a long term view on the stock. At CMP, we remain neutral on the stock.''
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