X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Ipca: Hit by compliance issues - Views on News from Equitymaster
MidCapSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Ipca: Hit by compliance issues
Aug 24, 2015

Ipca has announced its 1QFY16 results. The company has reported a decline of 19.1% YoY in its sales and a fall of 86.2% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Net sales declined by 19.1% YoY during the quarter due to poor exports. Even domestic revenues grew moderately for the quarter.
  • On the back of poor topline performance, the operating margins plummeted by 13.9% to 10.8% during the quarter. Thus, operating profits declined by 64.4% YoY.
  • Poor performance at the operating level coupled with forex losses took its toll on the bottomline which fell 86% YoY.

Standalone - Financial performance
(Rs m) 1QFY15 1QFY16 Change
Net sales 9,282 7,510 -19.1%
other operating income 78 70 -9.9%
Expenditure 7,050 6,758 -4.1%
Operating profit (EBDITA) 2,309 822 -64.4%
EBDITA margin (%) 24.7% 10.8%  
Other income 63 41 -34.3%
Interest (net) 57 55 -4.7%
Depreciation 512 421 -17.7%
Profit before tax 1,803 388 -78.5%
Forex (gain)/loss (23) 116  
Tax 458 82 -82.0%
Profit after tax/(loss) 1,367 189 -86.2%
Net profit margin (%) 14.7% 2.5%  
No. of shares (m)   252.4  
Diluted earnings per share (Rs)   10.7  
Price to earnings ratio (x)*   72.2  
*based on trailing 12 months earnings

What has driven performance in 1QFY16?
  • The USFDA issues not only impacted the US sales, but the company had come under regulatory trouble from other agencies too. That said, Ipca has managed to get some clearances on its facilities from various regulators. This is expected to improve performance gradually.

    Business Mix
    (Rs m) 1QFY15 1QFY16 Change
     
    Formulations 6,809 5,429 -20.3%
    (% of revenues) 73% 72%  
    Domestic 2,932 3,181 8.5%
    Export 3,877 2,248 -42.0%
    API 2,473 2,081  
    (% of revenues) 27% 28%  
    Domestic 642 560 -12.8%
    Export 1,831 1,521 -16.9%
    Total 9,282 7,510 -19.1%

  • The export segment continued to remain a drag for the quarter too. The US and institutional sales were under pressure post regulatory bans, even sales from emerging markets came down during the quarter. The CIS and West African regions were impacted by currency issues. This led to de-stocking of some inventories. The institutional sales are expected to resume sometime during mid of 2QFY16.

  • Even the domestic business remained under pressure for the quarter. Sales were impacted by decline in the malaria business. The sales of anti-malaria portfolio declined by 21% YoY. Since Ipca depends a lot on this business the overall growth gets impacted whenever anti malarial segment witnesses lower offtake of drugs.

  • The poor sales growth from all geographies substantially impacted Ipca's operating performance. The company currently has around 40% of its capacity unutilized because of regulatory issues and it is also incurring additional costs on consultants to resolve the compliance matters.

  • Besides the poor performance at the operating level, the bottom line was further impacted by forex loss as against forex gain in 1QFY15.
What to expect?
At the current price of Rs 770, the stock is trading at a price to earnings multiple of 14.1 times our revised estimated FY17 earnings.

The compliance issues have severely hurt the company's performance since the last few quarters. Some recovery was seen with Hydroxychloroquine sulfate (HCQs) shipments normalizing with hardly any price erosion in the US. This is one of the important products exempted from the ban at its Pithampur facility by the USFDA. Further, even institutional business is at the cusp of resuming. The full quarter impact will be seen 3QFY16 onwards. It is expected that FY16 will witness some recovery on sales and margin front.

Ipca has been implementing comprehensive measures at its three facilities which are under the import ban. As per the management, the company will be resolving all the issues by December 2015, then it will call USFDA for re-inspection.

We expect the company to resolve its regulatory issues over a period of time. We are in process of updating FY18 estimates. Those who have the stock of Ipca in their portfolio can continue to Hold on to the same.

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.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

IPCA LABS SHARE PRICE


Dec 12, 2017 (Close)

TRACK IPCA LABS

  • Track your investment in IPCA LABS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

IPCA LABS 8-QTR ANALYSIS

COMPARE IPCA LABS WITH

MARKET STATS