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Ipca: High tax hits the bottom line - Views on News from Equitymaster
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Ipca: High tax hits the bottom line
Jun 1, 2013

Ipca has announced its 4QFY13 results. The company has reported 19% YoY growth in sales and a 1.5% YoY decrease in the bottomline. Here is our analysis of the results.

Performance summary
  • Topline grows by 19% YoY during the quarter led by growth in the formulations segment.
  • Operating margins improved by 1.4%, leading to growth in operating profit by 26.9%.
  • Bottomline declines by 1.5% YoY during 4QFY13 due to surge in tax expenses during the quarter.

Consolidated financial performance
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 5,538 6,586 18.9% 22,999 27,388 19.1%
other operating income 80 131 62.8% 301 396 31.4%
Expenditure 4,497 5,294 17.7% 18,166 21,571 18.7%
Operating profit (EBDITA) 1,122 1,423 26.9% 5,135 6,213 21.0%
EBDITA margin (%) 20.3% 21.6%   22.0% 22.4%  
Other income 32 26 -20.1% 129 187 44.4%
Interest (net) 111 55 -50.4% 394 313 -20.5%
Depreciation 142 216 52.0% 653 840 28.6%
Profit before tax 900 1,178 30.8% 4,217 5,246 24.4%
Forex (gain)/loss (51) (78)   528 633 19.9%
Tax 186 501 169.7% 888 1,300 46.4%
Profit after tax/(loss) 766 755 -1.5% 2,802 3,314 18.3%
Net profit margin (%) 13.8% 11.5%   12.2% 12.1%  
No. of shares (m)         126.2  
Diluted earnings per share (Rs)         25.7  
Price to earnings ratio (x)*         23.7  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 4QFY13?
  • Topline grew by 19% YoY during the quarter led by growth in the formulations segment.

    Business mix
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
     
    Formulations 3,875 4,914 26.8% 17,501 20,723 18.4%
    (% of revenues) 70% 75%   76% 76%  
    - Domestic 1,482 1,784 20.4% 7,540 8,781 16.5%
    - Export 2,393 3,130 30.8% 9,961 11,942 19.9%
    API 1,663 1,672 0.5% 5,497 6,665 21.3%
    (% of revenues) 30% 25%   24% 24%  
    - Domestic 369 351 -4.9% 1,439 1,446 0.5%
    - Export 1,266 1,296 2.4% 4,058 5,219 28.6%
    Total 5,538 6,586 18.9% 22,998 27,388 19.1%

  • Domestic formulations witnessed 21% YoY growth during the quarter. However, there was some excise duty adjustment of Rs 80 m. Adjusting for this, revenues from the domestic segment grew by 15% YoY for the said period. As the pricing policy gets implemented, the company does not expect significant impact on its overall domestic sales. In the worst case, its sales of Rs 100-150 m can get impacted. Having said that, the company remained confident of achieving 15-16% growth for FY14 after considering impact from the pricing policy. However, some blips in sales are expected in the beginning of FY14, on the back of the new policy. The company's ranking in IMS has gone up from 26 to 24 with market share of 1.35% from 1.29% a year back.

  • Export formulations witnessed healthy growth of 31% YoY for 4QFY13. During the quarter, the generic segment witnessed increase of 40% YoY. Most of the geographies witnessed robust growth in most of its generic export business. The branded formulations witnessed growth of 11%YoY to Rs 800 m for 4QFY13. The other geographies viz., Russia, South Africa and RoW witnessed good growth. The institutional segment, which supplies anti malaria drugs in South African countries and other emerging markets, too witnessed robust growth of 48% for the quarter. This segment now contributes approx 14% to company's revenues. Company remained confident of above 20% YoY growth from this segment for FY14.

  • The API segment witnessed muted growth of 0.5% YoY. This was due to one-time impact of Tonira sales. Adjusting for this impact, the sales grew by 19% YoY for the quarter.

  • Operating margins improved by 1.4%, leading to growth in operating profit by 26.9%. For FY14, company has guided for EBITDA margins to remain in range of 22.3-22.8%, inspite of increase in research and development expenditure.

  • Bottomline declined by 1.5% YoY during 4QFY13 due to a one-time tax expense incurred during the quarter. Company had done capitalization of R&D center which increased the tax expenditure by Rs 350 m. Excluding this impact, bottom line grew by 44% YoY.

    Conference call highlights

  • Topline guidance of 16-17% for FY14. This excludes upside from Indore SEZ, which is awaiting USFDA clearance, with EBITDA margin guidance of 22.3-22.8%.

  • R&D expenses for FY13 was 3.7% of sales, this will increase to 4% for FY14.

  • Tax rate for FY14 at 20%.

  • Capex for FY13 was Rs 3.5 bn.

  • Outstanding hedges - 42% of Net sales hedged at Rs 56.5.

  • Ipca is working on a Cardiac drug to launch in the US market. The company has already spent US$ 3 m on this drug and another US$ 5 m will spent by the company for its trials. If the company gets the approval, this will be a low competition and high margin launch by the company.

  • Indore SEZ, is awaiting USFDA clearance. Company expects the USFDA to visit in FY14 and thus grant a clearance for the facility soon. Company has filed 33 ANDAs and 14 are approved so far. Ipca holds 2 approvals from USFDA. At the current capacity level, this facility has potential to generate revenues of US$ 100 m per annum.

What to expect?
At the current price of Rs 604, the stock is trading at a price to earnings multiple of 12.8 times our estimated FY15 earnings. Growth is expected to be robust going forward as the company considerably ramps up its registration of products which will ultimately lead to new product launches. Further, with the SEZ plant getting operational, Ipca will benefit on the bottom line too. The company's low cost manufacturing has always helped it get tenders and thus it will be able to generate business on that front as well. Based on the current valuations we recommend investors to Hold on to the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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