Ipca Laboratories Ltd

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 - 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.