Ipca Labs - At An Inflexion Point: Motilal Oswal

Motilal Oswal Report

After three years of earnings deterioration, Ipca Laboratories Ltd. is well-poised to deliver strong earnings growth over FY24-27.

With broad-based growth in volume and pricing, Ipca has been able to outperform the industry significantly in the domestic formulation market, with 15% YoY growth in MAT August 2024 and a 15% compound annual growth rate in MAT Aug’21-24.

Ipca is making efforts to augment its export prospects through new launches and market share gains in generics exports. It is also working to drive synergies from the Unichem acquisition.

After a muted performance in the U.S. generics business over the last 10 years due to compliance issues, Ipca is geared up to revive its U.S. business through improving U.S. Food and Drug Administration compliance, new launches over the next six-eight months, and synergies from the Unichem acquisition.

Considering a 29% earnings CAGR and an anticipated improvement in the return ratio to ~17% over FY24-26, we value Ipca at 38 times 12 months forward earnings to arrive at a target price of Rs 1950.

We upgrade Ipca to Buy as we factor in better operational efficiency, a revival in U.S. business, synergies from the Unichem acquisition, and well-established DF business.

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