IPCA Labs – IDFC-SSKI Stock Tips
by admin on September 28, 2009
IPCA Labs
Reco price: Rs 721
Current market price: Rs 755
Target price: Rs 1,045
Upside: 38.4%
Brokerage: IDFC-SSKI
The newly-acquired scale, on the back of 70 per cent growth in revenues and 130 per cent jump in EBITDA between 2005-06 and 2008-09, imparts critical mass for IPCA Labs (IPCA) to grow.
Along with 18 per cent CAGR between 2008-09 and 2010-11 in domestic formulations sales, API momentum (at 13 per cent) and increasing formulation exports (22 per cent), the brokerage expects revenue growth of an average 18 per cent in the same period.
Given the high revenue growth visibility, IPCA would register 60 basis points expansion in its operating margins to 20.6 per cent by 2010-11. Adjusted net profit would likely see a 22 per cent CAGR over FY09-11 to Rs 238 crore in 2010-11.
With limited capex of around Rs 70 crore and operating profits in excess of Rs 300 crore per year, IPCA would start generating free cash from 2009-10. With 27 per cent return on equity (RoE) and high earnings visibility over FY09-11E, IPCA is trading at 9 times 2009-10 estimated earnings.
While frontline pharma stocks are trading at 18-20 times 2009-10 estimated earnings, IPCA is expected to get re-rated as the market starts valuing its growth visibility and healthy balance sheet. At the target price of Rs 1,045, the stock would trade at 11x 2010-11 estimated earnings. Reiterate outperformer.
IPCA Labs
Reco price: Rs 721
Current market price: Rs 755
Target price: Rs 1,045
Upside: 38.4%
Brokerage: IDFC-SSKI
The newly-acquired scale, on the back of 70 per cent growth in revenues and 130 per cent jump in EBITDA between 2005-06 and 2008-09, imparts critical mass for IPCA Labs (IPCA) to grow.
Along with 18 per cent CAGR between 2008-09 and 2010-11 in domestic formulations sales, API momentum (at 13 per cent) and increasing formulation exports (22 per cent), the brokerage expects revenue growth of an average 18 per cent in the same period.
Given the high revenue growth visibility, IPCA would register 60 basis points expansion in its operating margins to 20.6 per cent by 2010-11. Adjusted net profit would likely see a 22 per cent CAGR over FY09-11 to Rs 238 crore in 2010-11.
With limited capex of around Rs 70 crore and operating profits in excess of Rs 300 crore per year, IPCA would start generating free cash from 2009-10. With 27 per cent return on equity (RoE) and high earnings visibility over FY09-11E, IPCA is trading at 9 times 2009-10 estimated earnings.
While frontline pharma stocks are trading at 18-20 times 2009-10 estimated earnings, IPCA is expected to get re-rated as the market starts valuing its growth visibility and healthy balance sheet. At the target price of Rs 1,045, the stock would trade at 11x 2010-11 estimated earnings. Reiterate outperformer.
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