IPCA Laboratories: Recommendation Review
1/10/2013 9:00 PM Thursday
The pharma sector has been in the news in recent times, thanks to many of the companies in the sector reporting developments on various fronts. That apart, this sector has always been a defensive one, and selecting the right stocks therein aids in strengthening the capability of your portfolio to withstand market volatility. One such scrip that we had recommended in our Choice Scrip section in DSIJ Vol. 27, Issue No. 20 was IPCA Laboratories (dated 23rd September, 2012), when the scrip was trading at Rs 442. The company’s strong USFDA product pipeline, surging export revenues and improvement in its EBITDA margins were reasons why we felt that investors should hold this stock in their portfolio.
IPCA Labs has recently received approval from the World Health Organisation (WHO) for its anti-malarial formulations, which have further fuelled the bullish sentiment on the stock. It has already seen a strong surge in the revenues from anti-malarials in FY12, and the approval from WHO would further bolster its earnings on that front. This, along with its other fundamental strengths, reinforces our conviction in the company and its stock.
Its US revenues are a major growth driver for IPCA, and have been contributing strongly to its topline. Going forward, revenues from the US are expected to be strong on the monetisation of the 12 approved ANDAs.
Another factor that keeps the stock in focus is that the company has received USFDA approval for its Indore SEZ facility. The management expects about USD 100 million (about Rs 550 crore) revenues a year from this new facility when used at the optimum level. To rake in higher revenues, the company has moved five growth products from its Silvassa facility to Indore facility, which would also lead to improved margins.
The scrip has performed exceedingly well and at its CMP of Rs 522, it is currently providing returns of 18 per cent. We suggest that investors book profits in the scrip at the current levels, at least to the extent of 50 per cent of their holding.
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