Ipca Laboratories Ltd - Research Report

Private Client Research




Pharmaceuticals & Drugs - Global


Ipca Laboratories Ltd

Pharmaceuticals & Drugs - Global

June 02, 2020

Sensex: 33825.53

CNX Nifty: 9979.10


BSE: 524494

Reco Price
Rs. 1533
Price Target (2 - 3 Years)
Rs. 2200


June 02, 2020



CNX Nifty








Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
1825.00 - 844.65
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

Ipca Laboratories Ltd Sensex
Ipca Laboratories Ltd
Return (%)


(in %)

+91 22 6639 3000



IPCA Labs, founded in 1949, is a fully integrated Indian pharmaceutical company engaged in the manufacture, research, and development of pharmaceutical products. The company manufactures over 350 formulations and 80 Active Pharmaceutical Ingredients (APIs) for various therapeutic segments. IPCA Labs is one of the world's largest manufacturers and suppliers of over a dozen APIs. These are produced right from the basic stage at manufacturing facilities inspected by the world's most credible drug regulatory authorities like US-FDA, UK-MHRA, EDQM-Europe, WHO-Geneva and many more. It offers active pharmaceutical ingredients such as Atenolol, Chloroquine Phosphate, Furosemide, Hydroxychloroquine Sulphate, Metoprolol Succinate, Metoprolol Tartrate, and Pyrantel Salts.

IPCA Labs is a therapy leader in India for anti-malarials with a market-share of over 34% with a fast expanding presence in the international market as well. IPCA Labs also leads in DMARDs (Disease Modifying Anti-Rheumatic Drugs) treatment for rheumatoid arthritis. The company has leading brands in 5 therapeutic areas, with 3 of its branded formulations being ranked among the Top-300 Indian brands by ORG-IMS

Hydroxychloroquine is the new dose for growth

Hydroxychloroquine - the next growth driver:
To tackle the current pandemic of Covid-19, some researchers across the world have proved that Hydroxychloroquine is one of the possible drugs that can be used to treat Covid-19 patients. IPCA labs has the world’s largest production facility for Hydroxychloroquine and is also the only company which has done backward integration for its API sourcing, which makes it less dependent on China for its raw material requirement. We believe this opportunity will help IPCA Labs to drive its business in addition to its ongoing branded business. USFDA has also provided exemption to its 3 facilities (USFDA had imposed ban on these sites since 2015); as a result, the company can supply Hydroxychloroquine to the US market. We believe IPCA Labs can leverage this opportunity well and we expect steady growth in API business in the near term.

API business will continue to post steady growth:
In India, most companies manufacturing APIs source the KSM (key start material) from China. As per data, 70% of raw material for APIs is imported from China. Presently, API manufacturers are facing scarcity of raw materials. IPCA Labs, being backward integrated and hence, produces its KSM requirement, has posted growth of 33% in 9M FY20. As a result of this backward integration, IPCA Labs will continue to grow its API business as it is less dependent on China. Additionally, the management has stated that they have started receiving enquiries for their APIs and branded formulations. We expect IPCA to capture the market in the light of this uncertain situation and drive its business well.

Capacity expansion:
IPCA Labs acquired 35-acre land at Dewas and a plant from Noble Explochem to expand its API facilities and reduce dependence on others for API and intermediaries. Currently, 55% of its formulations business is backed by captive APIs. The company imports only one API from China. The development of Dewas plant would require a CAPEX of Rs. 300 crores where in Rs. 100 crores will be expended in FY21E. IPCA Labs expects environmental clearance of the facility and plans to commence construction by June FY21E. The company has stated that the new facility will potentially earn Rs. 500 crores revenue in a few years, post commencement of operations.

Domestic formulations to continue growth trend:
The company plans to continue focusing on growing its market share in pain management, derma and other therapies. With 27% of the domestic business under price control, IPCA Labs plans to grow volumes as against competitors that are looking to achieve growth through upward price revisions. It has 7-8 products under clinical trials for the Indian market and would explore opportunities for in-licensing of products. IPCA Labs currently spends 3-4% of sales on R&D.

Impact of COVID-19:
While IPCA Lab's API consumption is not directly imported from China for manufacturing formulations, the source of KSM for its 3rd party outsourcing APIs are imported from China. Therefore, management has guided a negative impact in China’s delayed production with due consideration to the Covid-19 epidemic spread. The company stated that its formulation business won’t be impacted till May-June since it has high inventories back-up. Shipments from North China have already commenced while shipments from the rest of China may start within the next few weeks.



The Indian pharmaceuticals market supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK. Indian drugs are exported to more than 200 countries in the world, with the US as the key market. Pharmaceutical exports from India, which include bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgicals reached US$ 19.14 billion in FY19 and US$ 10.8 billion in FY20 (up to November 2019). The exports are expected to reach US$ 20 billion by 2020.

Generic drugs account for 20 per cent of global exports in terms of volume, making the country the largest provider of generic medicines globally and expected to expand even further in coming years. Based on moving annual turnover, Anti-Infectives (13.6 per cent), Cardiac (12.4 per cent), Gastro Intestinals (11.5 per cent) had the biggest market share in the Indian pharma market in 2018. Indian pharma companies received a total of 415 product approvals in 2018 and 73 tentative approvals.

Source: IBEF, Company, Market research

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Description Mar-17 Mar-18 Mar-19 Mar-20 (E) Mar-21 (E) Mar-22 (E)
Net Sales 3156.19 3257.76 3745.69 4382.46 5258.95 6415.92
Net Sales Growth % 0.10 0.03 0.15 0.17 0.20 0.22
COGS 939.40 978.34 1090.34 1174.50 1367.33 1668.14
Gross Profit 2216.79 2279.42 2655.35 3207.96 3891.62 4747.78
GP % 0.70 0.70 0.71 0.73 0.74 0.74
Employee Cost 695.98 735.88 787.40 920.32 1104.38 1347.34
S&D. exp. 280.74 277.62 324.77 372.51 447.01 545.35
Other expenses 824.65 823.94 864.91 1025.49 1262.15 1571.90
Total Expenditure 2740.77 2815.78 3067.42 3492.82 4180.86 5132.73
EBITDA 415.42 441.98 678.27 889.64 1078.08 1283.18
EBITDA Growth % 0.52 0.06 0.53 0.31 0.21 0.19
EBITDA Margin % 0.13 0.14 0.18 0.20 0.20 0.20
Depreciation 172.95 177.73 182.42 185.60 204.20 215.30
EBIT 297.23 322.33 570.51 704.04 873.88 1067.88
EBIT Margin % 0.09 0.10 0.15 0.16 0.17 0.17
Other Income 54.76 58.08 74.66 88.50 94.50 106.80
Interest 26.91 27.57 22.24 18.50 16.80 15.80
PBT before excp. 270.32 294.76 548.27 774.04 951.58 1158.88
Excep. Inc/exp 0.00 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 270.32 294.76 548.27 774.04 951.58 1158.88
Provision Tax 67.52 51.11 104.24 123.85 152.25 185.42
PAT 202.80 243.65 447.39 650.19 799.33 973.46
PAT Growth % 1.11 0.20 0.84 0.45 0.23 0.22
PAT Margin % 0.06 0.07 0.12 0.15 0.15 0.15
EPS 15.42 18.97 35.01 51.44 63.24 77.01
Source: Stockaxis Research, Company Data


With the current Covid-19 pandemic, there is a race among companies across the world to find a vaccine; recently USA and French researchers have found that Hydroxychloroquine and Azithromycin are helping patients to recover and heal faster, and have become the possible treatments for Covid-19. IPCA labs is one of the largest manufacturers of Hydroxychloroquine. The USFDA has partially lifted the ban on Hydroxychloroquine manufacturing facilities of IPCA Labs so that the company can export to the US market. We believe this is a great opportunity for IPCA Labs for supplying and fulfilling the requirement of Hydroxychloroquine in the US, which is one of the largest Pharma markets globally. IPCA Labs stands to gain from this opportunity. The development comes at a time when IPCA Labs is already seeing strong growth led by its domestic business and complimented by exports (branded, generics and institutional business). We believe with growth in both domestic and export markets, IPCA Labs will see robust growth going forward. Hence we recommend “Buy” on IPCA Labs for long term horizon.