Tags: IPCA , IPCA LABORATORIES, IPCA stocks,
With high earnings visibility, a diversified portfolio and resilient growth, the IPCA stock seems a compelling growth story
aying a reasonable price for a stock is important, more so in an expensive market. hese days, many companies look promising, but most of theirs stock prices have, possibly, run ahead of their intrinsic value. IPCA Laboratories a mid-sized pharmaceutical manufacturer where that has not happened despite the visibility on future earnings.
The company’s main business is manufacturing drug formulations. It started manufacturing active pharmaceutical ingredients (API) and intermediaries to strengthen its drug formulations activity. Today, IPCA is a vertically integrated pharma company with API, intermediaries and formulations in its product portfolio, and has presence in more than hundred countries.
Business performance. The formulations business is IPCAs major revenue earner, contributing about 72 per cent to net sales at the end of FY09. API and intermediarjes formed the remaining 28 per cent. The company has focussed equally on both these segments, which has resulted in their healthy growth. During FY09, the company’s formulations business grew 18 per cent over the last year, and sales of API and intermediaries grew 31 per cent. IPCA has a diversified product portfolio covering therapeutic groups. It includes cardiovascular and anti-diabetic drugs, non-steroidal anti-inflammatory drugs, and anti-bacterial and anti-malarial drugs. The cardiovascular and anti-diabetic segment contributes the most to the company’s formulation revenues. These are lifestyle-related drugs that have immense potential in a country like India. With focus on the Indian market, the company is now expanding its portfolio with new launches in the lifestyle-related segment.
IPCA is also geographically diversified. In FY09, over 50 per cent of its revenue came from exports to regions such as Europe, the Americas and Africa. Despite the global downturn in FY09, the company’s exports grew by an impressive 27 per cent compared to around 5 per cent growth for the global pharmaceutical market.
Financial performance. IPCA has announced impressive results for the quarter ending September 2009 (Q2FY1O). Net total income moved up 24 per cent on a year-on-year (y-o-y) basis. The operating margin remained flat over Q2FYO9. The growth in profit was high at 75 per cent, although it was on last year’s low base (last year’s profits were affected by forex losses). The strong performance in the last quarter is not entirely a one-off. IPCA has been growing at a healthy pace for a long time. The compounded growth rate for its total income over the last 10 years is close to 14 per cent, with income from domestic sales and exports growing at almost the same pace. IPCA has also changed its product mix by shifting its dependence from low margin anti-malarial drugs to high-margin chronic and lifestyle medicines. The strategy has helped it grow its margins.
Valuation. IPCAs share price has doubled in value over the last year. Despite this, it is trading 14 times its trailing 12 months’ earnings per share. This value is attractive compared to the industry’s price-earnings multiple of 30. Also, the company is growing faster than both the domestic and the global pharma industry. Its last quarter growth figure is among the highest in the sector.
In future, exports will be the major driver of the company’s growth. In developed markets, it is building presence in generic medicines while in emerging markets, it is focused more on branded products. The company’s growing product portfolio in the lifestyle segment will also help it maintain strong growth in the domestic market. All this makes IPCA an investor’s pick in an expensive market. ii
0 comments:
Post a Comment