Stock Pick From The Healthcare Sector

Here Is Why: 

• Ramp up in the US business to be the future growth driver
• Robust product pipeline of 38 ANDA filings
• Consistent dividend payment for the last 25 years

The pharmaceutical sector, for sometime now, has been a talked about sector. This time in our choice scrip column we are presenting to you Mumbai based IPCA Laboratories (IPCA). One factor that the Indian investors have fancied is dividend. On that front, the company scores a perfect 10 by dolling out consistent dividend for the last 25 years. On the financial front, revenue of the company has grown by 20 per cent and the bottomline grew by 18 per cent on a five-year CAGR basis. There are several other factors that make this stock an attractive investment option. Let us take a look at those factors.

The company is basically into formulations and active pharma ingredients (API). Export constitutes of around 63 per cent of the total revenue as of December 31, 2013.Let us look at the key business drivers for the company going forward. It is expected that the business of the company in the US is likely to witness a ramp up from the first quarter of FY15. This will be due to the initiation of supply from Indore SEZ post the company was granted the USFDA clearance. On the other hand, post the recent launch of Artemether-amodiaquine (anti-malarial drug with a market size of USD10 million) revenues from the institutional business also looks strong. The street is expecting the company to post revenue to the tune of USD 60 million in FY15 in the US. 

Post December 2013 results were announced, the company has held an analyst concall. Let us take a look at the highlights of the concall. At present, the company has 38 filings in all in the US, of which 17 are approved and nine commercialised. Currently, it is filing 10-12 ANDAs (Abbreviated New Drug Applications) per year. This substantiates the revenue visibility of the company going forward. Giving guidance for the next fiscal FY15 the company has said that it is aiming a growth of 14 to 16 per cent in domestic business, 16 to 17 per cent growth in the institutional business, 25 to 30 per cent growth in the branded generics business and 55 to 60 per cent growth in the US business. 

In the recently concluded Q3FY14, the topline of the company has grown by 17.73 per cent on YoY basis to stand at Rs 815.15 crore for Q3FY14 as against Rs 692.41 crore reported during the same quarter last fiscal. EBITDA margins for the quarter expanded by 379 basis points on YoY basis, helped by better cost rationalisation by the company. On the bottomline front, the company posted a net profit of Rs 139.12 crore for Q3FY14 as against Rs 87.89 crore reported during the same quarter last fiscal, up by 58.29 per cent. On the valuation front, the stock trades at a TTM PE of 24.68x. We recommend a buy on the counter with a price target of Rs 904 for one year time horizon.