IPCA LABORATORIES: PROSPERITY LIES IN GOOD HEALTH
Globally, India is known to be the largest provider of generic drugs. The Indian pharmaceutical sector supplies over 50 per cent of global demand for various vaccines with 40 per cent of generic demand in the US and 25 per cent of all the medicine in the UK. At such a juncture, Ipca Laboratories is well-poised to derive maximum mileage with its impressive product portfolio and research and development expertise
Ipca Laboratories is a consumer-led pharmaceutical company, creating healthy doses of life since 1949. It has been a crucial healthcare partner across 120 countries and six continents. It is a fully integrated pharmaceutical company which manufactures over 350 formulations and 80 APIs for various therapeutic segments. The company stands out as one of the world’s largest manufacturers and suppliers of over a dozen APIs out of which it has manufacturing leadership in over 12 APIs globally. The API formulation division has been in the lead for 30 years and Ipca Laboratories produces over 80 APIs at 12 production facilities, accounting for nearly 25 per cent of its turnover.
The core strategic focus has been on backward integration, resulting in superior supply chain reliability and costcompetitiveness in a dynamic market. Ipca Laboratories has also emerged as one of India’s top exporters of APIs, serving over 70 countries around the globe. The APIs are produced from scratch at fully automated manufacturing facilities which are approved by well-known drug regulatory authorities like UK-MHRA, EDQM-Europe and WHO-Geneva, among others. The company has leading brands in pain, rheumatology, anti-malarial and hair care therapy in India. Also, four of its formulations rank amongst the top 300 brands of the Indian pharmaceutical market as per IQVIA, May 2020.
It is also recognised as a ‘Star Trading House’. Up to 52 per cent of its sales come from exports. It has a strong field force to promote brands in more than 35 countries of the CIS, Southeast Asia, the Middle East, Latin America and Africa. The company’s marketing offices are placed in Russia, Ukraine, Kazakhstan, Belarus, Vietnam, Philippines, Sri Lanka, Myanmar, Kenya, Colombia, Nigeria and Mexico where it has asubsidiary company. The domestic branded formulations division has an all-India IQVIA rank of 19 according to MAT, December 2020. The division has 15 therapy-focused marketing divisions and over 2,000 wholesalers. It is a market leader in rheumatoid, arthritis and anti-malarial drugs.
Sector Overview
Globally, India is known to be the largest provider of generic drugs. The Indian pharmaceutical sector supplies over 50 per cent of global demand for various vaccines with 40 per cent of generic demand in the US and 25 per cent of all the medicine in the UK. The Indian pharmaceutical sector is predicted to grow to USD 100 billion while the medical device market is expected to grow to USD 25 billion by 2025. Pharmaceutical export from India includes bulk drugs, intermediates, drug formulations, biologicals, alternative systems of medicines and herbal and surgical products. Exports from the pharmaceutical sector were recorded at USD 16.3 billion in FY20. On the other hand, exports in FY21 stood at USD 15.86 billion. The Union Budget 2021 has also provided nearly 200 per cent boost to the development of the pharmaceutical sector in order to help the country enhance its image as the ‘pharmacy of the world’.
The government also plans to promote the pharmaceutical sector with a fund of nearly Rs1 lakh crore (USD 1.3 billion) in order to encourage the companies to manufacture pharmaceutical ingredients domestically by 2023. A setup of an electronic platform to regulate online pharmacies under a new policy and also to stop any misuse due to easy availability is in the pipeline. The Government of India has also offered Rs6,940 crore worth production-linked incentives in the range of 5-20 per cent for incremental sales and is on the track of setting up three mega drug parks in order to impart sustainable cost competitiveness.
The speedy introduction of generic drugs in the market remains in the limelight and is expected to benefit the Indian pharmaceutical companies.
Financial Overview
In terms of Ipca Laboratories’ consolidated quarterly performance, its net sales increased to Rs1,409.83 crore in Q3FY21 as compared to Rs1,212.86 crore in Q3FY20, a rise of 16.24 per cent. The operating profit rose by 31.02 per cent from Rs291.79 crore in Q3FY20 to Rs382.31 crore in Q3FY21. The net profit of Q3FY21 was recorded at Rs269.77 crore as compared to Rs200.06 crore in the same quarter in the previous year – a jump of 34.84 per cent. On an annual basis, its net sales increased by 23.2 per cent from Rs3,773.18 crore in FY19 to Rs4,648.71 crore in FY20. The operating profit was up by 29.9 per cent in FY19 as compared to FY20. The net profit was reported 37.69 per cent higher in FY20 at Rs611.37 crore as compared to Rs444.03 crore in FY19.
The return on assets (ROA) was 13.53 per cent, greater than 10.62 per cent compared to the previous fiscal year. The return on equity (ROE) was also seen improving in FY20 as compared to FY19 at 19.18 per cent as against 15.60 per cent. On a standalone basis, domestic formulations’ business recorded a growth of 16 per cent in FY20 as compared to FY19. Whereas, in Q3FY21 the domestic formulations revenue surged up 8 per cent at Rs523.16 crore as compared to Rs485.63 crore in the same quarter previous year. The APIs and intermediates business gave a sales growth of 33 per cent in FY20. In the third quarter of FY21, the domestic APIs business recorded sales at Rs74 crore as against Rs53.18 crore in the same quarter of the previous fiscal year, a rise of 39 per cent. The export APIs business recorded growth of 20 per cent in Q3FY21 as compared to Q3FY20.
Regional Performance
Exports play a major role in Indian pharmaceutical companies. Ipca Laboratories exports the products to 100 countries across the globe. The international business amounted to Rs2143.75 crore in 2019-20 as compared to Rs1730.84 crore in the previous year previous, accounting for a growth of 24 per cent. To throw more light on the same, let’s have a look at some of the major exports to the following continents:
Europe: The company reported European export sales of Rs635.48 crore during the financial year 2019-20 as against sales of Rs532.82 crore in 2018-19, a growth of 19 per cent. The company has also developed and submitted 62 generic formulation dossiers for registration in Europe out of which 61 dossiers are registered. The company has obtained certificate of suitability (COS) for 46 APIs from the European Directorate for Quality Medicines.
Americas: The sales of the company grew by 45 per cent in this continent in the year 2019-20. Out of 46 ANDA (abbreviated new drug application) of generic formulations developed by the company which are filed with the US FDA, 18 ANDA applications have been granted till date. Up to 46 DMFs (drug master file) of the company are also currently filed with the US FDA.
Asia: The Asian business which excludes India recorded 35 per cent higher sales in 2019-20 as compared to the year prior to the same. The products of the company are exported to various Asian countries. In countries like Nepal, Sri Lanka, Myanmar, Philippines and Vietnam, the company markets its branded formulations via a dedicated field force.
Conclusion
As most countries have showed their willingness to invest in Indian markets for supply of corona virus vaccines and medical equipment, India is on the road to leverage the opportunity to emerge truly self-reliant in the pharmaceutical segment. Recently, a credit rating agency has reaffirmed ratings on bank facilities of Ipca Labs to CARE AA and Stable CARE A1+ pertaining to gaining strength from strong business profile supported by presence across multiple therapeutic segments and largely integrated operations along with improved financial risk profile and wide experience of the promoter family in the pharmaceutical industry. Some of the future growth drivers for Ipca Lboratories can be identified as using clinical research as a tool to launch innovative combination formulations. The company will focus on strong brand-building with well-targeted promotion.
It will also have a focus on portfolio optimisation strategies to identify need gaps for a build, enter, maintain and exit approach. The business lines would also be expanded through institutions and distributors. Steps would also be taken for expansion in already covered countries through additional field force. Strategic business relationships with small manufacturers will also be explored in order to increase the product basket. Considering the strong financial performance and strong future growth drivers, we recommend BUY for this stock.