Ipca reported a 7% miss in revenue, driven by a dip in India anti-malarial season and UK payment issues. Adjusting for these one-off effects, revenue was in line. At 25%, margins came in better than expected, driven by all-round cost savings. Management has guided for improvement in India business growth for H2 and 25-27% margins for remaining FY21/22/23 on the back of sustainable cost savings. We upgrade FY21/22e EPS by 17/10%. Buy India business recovers, (ex-malarial) sales up 6% y-o-y: Total domestic revenue was flat y-o-y, largely due to base erosion in anti-malarial drugs that registered sales of Rs 560 m vs Rs 950 m last year.
Excluding anti-malarial drugs, domestic business was up 6% y-o-y, as Pain & Analgesics, which accounts for more than half the domestic revenue, was up 10% y-o-y. Management guided for 10-11% domestic revenue growth for the next two quarters and we factor this in our model.
API strength to continue: Ipca’s export API business revenue has grown by 43% over H1FY21/H2FY20. Q1FY21 reflected HCQS sales but it has normalised in Q2. The company has guided to 18-20% growth in API business for rest of FY21.
Better visibility on margins, in line with peers: Several pharma companies have guided that margin improvement as seen in H1FY21 is sustainable. In case of Ipca, this is driven by operating leverage as well as reduced marketing spends.
We retain Buy; value company at 29.8x FY22e EPS with a PT of Rs 2,757.
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