Recommendation: Buy
CMP = Rs 638
Price target: Rs 875
Result highlights:
- Ipca Laboratories (Ipca) reported a 21.2% year-on-year (y-o-y) increase in its net sales to Rs 281.8 crore in Q3FY2008. The sales growth was in line with our expectations and was driven by a 32% rise in the domestic business and a 14% growth in the exports.
- After a subdued performance in Q2FY2008 (on account of lower sales of anti-malarials), Ipca's domestic formulation business resumed its strong momentum. The domestic formulation sales grew by an impressive 32.1% in Q3FY2008, clearly outpacing the industry growth of 12.3%. The strong performance was driven by increased traction seen in the chronic therapy segments of cardiovascular, diabetology and arthritis.
- Ipca's formulation exports grew by 19.2% to Rs 86.4 crore during the quarter. This was on the back of a strong performance in
- Ipca's operating profit margin (OPM) expanded by 40 basis points to 21.8% in the quarter. The expansion in the margin was driven by a 100-basis-point drop in the staff cost and a 150-basis-point reduction in the other expenses. Consequently, the operating profit grew by 23.7% to Rs 61.6 crore in Q3FY2008.
- At the current market price of Rs 638, Ipca is discounting its FY2008E earnings by 10.6x and its FY2009E earnings by 8.7x. The valuations at these levels seem absolutely compelling when viewed in context of the strong growth potential that awaits the company.
- I maintain positive stance on the stock and maintain Buy call with a price target of Rs 875 for the next 6 months.
