Pain likely to continue for Ipca Laboratories
PremiumBesides a strong domestic presence, a rise in cough, cold and other post-covid complications helped Ipca’s Q3
Shares of Ipca Laboratories Ltd are down about 3% since it announced its December quarter (Q3FY22) results last week. While the domestic business has done well, Ipca’s export performance was uninspiring.
In Q3, the domestic formulation (DF) and domestic active pharmaceutical ingredient (API) businesses saw a remarkable 23% and 16% year-on-year (y-o-y) growth, respectively. Besides a strong domestic presence, what has also helped Ipca in Q3 was increasing cases of cough and cold and other post-covid complications. The management said that in the past 8-10 years, the domestic business has outperformed the market and it hopes to maintain the momentum going forward. On the flip side, the muted export business has largely offset domestic growth. The upshot is that consolidated revenue from operations grew 1.5% y-o-y to ₹1,430 crore
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As such, certain worries seen in Q3 are expected to endure for a few quarters ahead. Problems with distributors in the UK impacted Q3 generic business in the region. To overcome this, Ipca has started its own distribution arm in the UK. Even so, the next three-four quarters will remain subdued in this regard as the network will take time to establish.
Also, the API export business, which declined by 20% y-o-y in Q3, is expected to remain dull in Q4 as well. The company expects business to normalize from Q1FY23.
The domestic business is normally leaner in Q4 and therefore, investors can expect revenues to be sequentially lower. Hereon, investors are likely to closely follow the status of import alert on the facilities. Purvi Shah, pharma analyst, Kotak Securities PCG Desk said, “Though the company exports to other countries, the pricing in US market can provide Ipca scope for margin expansion. As of now, only 6-10 exempted products are being exported to US markets due to the ban on its three facilities by USFDA (United States Food and Drug Administration). Successful inspection of the facilities by USFDA will be key trigger for Ipca shares as it will help investor sentiments than having an immediate financial impact."
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Further, there is also a risk of higher-than-expected rise in costs. In the long run, potentially lower-than-expected growth is another risk. “Ipca clocked 13% revenue CAGR during FY16-21 but we expect growth FY21-24 CAGR at 10% on slowdown in EU (Europe) and API export," said analysts from Jefferies India Pvt. Ltd.
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