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Stock Pick From The Pharmaceuticals Sector

| 9/6/2012 9:00 PM Thursday

Choice Scrip is a Blue Chip stock pick that is expected to give returns within a 6 months-1 year horizon. The recommendation is based on a fundamental analysis of the company.

The company recommended as the Choice Scrip for this issue is one of the oldest companies in the Indian pharmaceuticals sector.

IPCA Laboratories: From Strength To Strength

HERE IS WHY

  • The company has seen consistently good financial performance and dividend payment.
  • Its new USFDA-approved facility at Indore and additions to its product pipeline are expected to drive revenues.
  • High growth is expected in the antimalarials segment.

Established in 1949, Mumbai-based IPCA Laboratories is one of the oldest companies in the Indian pharmaceuticals sector. It is a fully integrated pharma company with a presence in formulations and active pharma ingredients (APIs). The scrip is already up by 60 per cent this year, and even on conservative valuations, it can get an investor another 25 per cent returns from here on. Besides, the company has also been extremely consistent in dividend payments.

Due to its focus on the promising products and high growth markets, IPCA has seen a 10-year CAGR of 19 per cent in revenues and 18 per cent in net profits. The EBITDA margins have also improved from 19 per cent in 2002-03 to 22.5 per cent in FY12. Going ahead, we expect sales growth and margin expansion to continue, led by exports. This makes it a good buy in the current uncertain macro-economic environment.

Best of Last One Year

Company Name

Reco.

CMP (Rs)

Gain %

Ajanta Pharma

171.00

407.75

138.45

FAG Bearings India

1261.00

1619.00

28.39

Torrent Pharmaceutical

559.00

708.00

26.65

Dabur India

104.00

128.00

23.08

Asian Paints

2985.00

3669.00

22.91

Colgate Palmolive

1014.00

1218.00

20.12

HDFC

621.00

722.00

16.26

ING Vysya Bank

325.00

374.50

15.23

The revenues of IPCA Laboratories are majorly driven by formulations, which constitute almost 76 per cent of its topline. The remaining 24 per cent come from its APIs business. Exports are a major contributor, making for 61 per cent of the total revenues. Over the years, the contribution of exports has increased consistently. Domestic revenues are also growing by a rate of over 15 per cent, and by FY12, the contribution from the same stood at 39 per cent.

On the exports front, Europe, Africa and America are key markets for IPCA, adding 41 per cent of the company’s revenues. In Africa, it is a dominating player in the antimalarials market, while in the US, it is growing on the generics boom. In Europe, it has started increasing formulations exports in other untapped countries from FY12 onwards, due to which revenues will grow in future.

The World Health Organisation (WHO) has approved its anti-malarial formulation, which has helped IPCA to increase its African revenues by 84 per cent in FY12. The company also has another set of products in the same category which has been approved by WHO and which it expects to launch in India in the second half of the current fiscal. This will provide a further upward thrust to its revenues. India and Africa are the biggest markets for antimalarials, where IPCA has already been successful with its formulations. The new products will garner more revenues for the company in these markets.

Share Holding Pattern as on 30/6/2012

Promoter and Promoter Group

45.91%

FII

10.49%

DII

21.36%

Bodies Corporate

9.98%

Public

12.26%

Total

100.00%

 

Find More Articles on: Stock Recommendations, Fundamental Picks, DSIJ Magazine, Choice Scrip

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