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Ipca Labs: Forex losses take toll - Views on News from Equitymaster

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Ipca Labs: Forex losses take toll

May 29, 2009

Performance summary
  • Revenues grow by 21% YoY in FY09, led by the robust performances of both its domestic and exports businesses.
  • EBDITA margins expand substantially by 3.6% due to a considerable fall in the raw material costs (as percentage of sales).
  • PAT declines by 35% YoY during the year. However, if one excludes the foreign exchange impact during both the periods, then the growth in net profits stands at a robust 70% YoY.
  • Recommends a dividend of Rs 11 per share (dividend yield of 2.2%).

Standalone snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 2,499 3,176 27.1% 10,564 12,734 20.5%
Expenditure 2,132 2,638 23.7% 8,727 10,056 15.2%
Operating profit (EBDITA) 367 538 46.5% 1,836 2,678 45.8%
EBDITA margin (%) 14.7% 16.9%   17.4% 21.0%  
Other income 13 10 -20.3% 28 22 -21.4%
Interest (net) 46 79 70.9% 201 304 51.3%
Depreciation 85 106 25.1% 322 393 21.9%
Profit before tax 249 363 45.8% 1,341 2,003 49.3%
Exceptional items - (102)   - (102)  
Forex loss/(gain) 2 154   (427) 757  
Tax 21 29 37.6% 358 232 -35.0%
Profit after tax/(loss) 226 79   1,411 912 -35.4%
Net profit margin (%) 9.1% 2.5%   13.4% 7.2%  
No. of shares (m)       25.1 25.0  
Diluted earnings per share (Rs)*         66.8  
Price to earnings ratio (x)         7.5  
* Excludes forex losses

What has driven performance in FY09?
  • Ipca’s topline during the year grew by 21% YoY led by the robust performances of both its domestic and exports businesses. While the domestic business registered a decent growth of 14% YoY, exports grew at a much faster clip (up 27% YoY). With respect to the latter, while the geographies of CIS, South East Asia, Middle East, Latin America and Africa contributed to growth, the US market also played a role in enhancing performance. The company had filed 11 ANDAs with the US FDA out of which 9 were granted approval. Thus, exports to the US commenced during the year.

  • Ipca’s operating margins substantially improved by 3.6% during the year due to the fall in raw material costs (as percentage of sales) from 39.7% in FY08 to 35.1% in FY09. While staff costs increased, the company managed to keep other costs under control.

  • The bottomline declined by 35% YoY largely due to the forex loss of Rs 757 m reported during FY09 as against a gain of Rs 427 m in FY08. Thus, excluding this impact, net profits for FY09 grew by an impressive 70% YoY. Lower tax expenses also bolstered the bottomline.

What to expect?
At the current price of Rs 498, the stock is trading at a multiple of 7.3 times our estimated FY11 earnings. Ipca’s growth drivers over the next three years will be the domestic market, ramp up of its US business and increasing sales from the semi-regulated markets. While the company is foraying into the US market at a time when there is already enough competition, we still believe that given its negligible base there is enough room for the company to grow revenues from this business. Launching new products on a consistent basis in all the markets that it is present in will be the key to augment revenues and profits. That said, forex pressures and pricing pressure in the UK market are the major challenges that the company could face in the future. The stock is within striking distance of meeting our target price and hence we advise investors to practice caution while investing in the stock at these levels.

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Mar 22, 2019 (Close)


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