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Spreading its Wings

India’s largest anti-malarial drug manufacturer, IPCA Laboratories is raring to expand overseas…


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IPCA is the country’s largest anti-malarial drug manufacturer. Also, it has a well-established API business as well as a formulations business. Emboldened by the success at home, Ipca is now raring to go out as attractive markets of Africa and US beckon. Sales for this `2,400 crore company (FY12) have compounded at an annual rate of 20 per cent in the last five years while earnings per share compounded at 17 per cent. In the last three years, a change in the business mix has resulted in a faster sales growth of 35 per cent while earnings compounded by an improved 30 per cent. Today, seven of Ipca’s top ten brands are growing faster than their respective industry rates.

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Strengths and Opportunities
Institutional business
Ipca is favourably placed when it comes to supplying anti-malarial drugs to a number of African countries. Ipca received the WHO prequalification for its artemisin and lumefantrine combination drug in December 2009 — a global $250-300 million opportunity open to only three other global players — Cipla, Ajanta Pharma and Sandoz. Among these companies, Ipca is the only player vertically integrated to manufacture this product. Ipca has managed to grab a 20 per cent share of this market which is expected to remain stable going forward. Ipca’s anti-malaria sales have grown from an estimated `40 crore in FY09 to near `300 crore in FY12. The company is set to become one of the largest players in anti-malarial tender business and this is the most profitable business for the company.
US business
With USFDA granting approval to its Indore facility, capacity constraints because of which the company could not ship more to the US market should ease. Commercial shipments from the Indore SEZ are expected to commence from Q4FY13. According to Arvind Bothra of BoAML, US business should double to `350 crore by FY15, growing at a compounded rate of 26 per cent annually.
Formulations strength
Scaling up of the formulations business has resulted in share of formulations going up from 67 per cent in FY06 to 78 per cent in FY12. Much of this scaling up is from exports to the US and the institutional business. With Ipca’s focus in the US strengthening, formulations should continue to dominate IPCA’s revenues.
Domestic formulations
Domestic formulations account for a third of Ipca’s total revenues and it is its higher profitability business. Ipca has successfully moved away from its dependence on anti-malarial and anti-infectives into newer domains of neuropsychiatry, cough preparations, neutraceuticals and dermatology. The company’s NSAIDs portfolio has grown at a robust 41 per cent annually in the last 10 years. The company’s focus into higher growth areas of NSAIDs, CVS and anti-diabetics has started showing results. According to Bothra of BoAML, domestic formulations should see an annual growth of 18 per cent going ahead driven by additions to the field force and deeper penetration in tier I/II cities.

Concerns
NPPP Impact
With a third of IPCA’s revenues coming from India, changes brought about by the implementation of the National Pharma Pricing Policy (NPPP) could impact the fortunes of the company. Impact not ascertainable yet. Rupee fluctuation. About 75 per cent of the company’s revenues originate outside India, exposing it to fluctuations arising out of rupee volatility.

Valuations
Ipca trades at a five year PEG ratio of close to 1. Its current P/E of 17 is far from its all-time high P/E of 28. Given the opportunities and its unique position in institutional anti-malarial business, the opportunities to scale up US operations and the strong and growing presence in domestic formulations, IPCA is a buy.





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