Value Pick: Brokerages see up to 35% upside in Ipca Laboratories’ shares amid strong outlook and lucrative valuations

The pharma sector has always been in the sweet spot since the beginning of the April series, a Zee Business report noted while citing the last five years’ data (2017-2021), wherein four of five times it has reported growth. Besides, the recent hike in the drug price is also termed as positive for the sector by experts. 

In this regard, one of the direct beneficiaries of these triggers has been IPCA Laboratories, which is lucrative on both fundamental and technical fronts and has a strong long-term outlook. Several brokerages see an upside of up to 35 per cent in the stock from the current levels.  

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Despite the underperformance relative to the benchmark BSE Sensex, the stock is poised for significant gains.

The stock on Monday gained nearly 2 per cent to Rs 1047 per share on the BSE as compared to around a 2.5 per cent rise in the S&P BSE Sensex at around 10:28 am. The stock in the last month has jumped almost 9 per cent as compared to a nearly 12 per cent surge in the benchmark index. 

ICICI Direct 

Ipca is a fully integrated pharma company manufacturing over 350 formulations and 80 APIs with exports contributing 50 per cent of revenues in FY21. Its share price has grown by around 4.3x over the past five years from Rs 275 apiece in February 2017 to Rs 980 a share in February 2022. 

We maintain a Buy stance due to good traction in domestic formulations and sustainable growth amid some margin pressure in the medium-term; and see a target price of Rs 1175 apiece with an upside of 15 per cent. (Valued at 24x P/E on FY24E EPS of Rs 48.9). 

Incremental growth in other therapies, especially non-communicable diseases such as pain management, cardio-diabetology, etc. The overall portfolio is poised for steady growth. Sustained traction from branded and generics exports sales with a revival in the EU may mitigate the US void. 

YES Securities 

While the company would show growth in the FY23 margin after Q4 results, the near-term margin trajectory would be a function of price increases taken to absorb higher input and other expenses like freight, packaging, and energy, and we factor in lower margin sequentially in Q4 of FY22. 

We introduce and roll over to FY24 EPS and retain the target multiple at 27x as believe near-term cost pressure does not change the longer-term margin outlook beyond FY23 which can result from consistent 11-13 per cent revenue growth.  

The brokerage retains a Buy stance with a target price of Rs 1,370 per share, which translates into an upside of around 35 per cent based on 27x FY24 EPS. 

Prabhudas Lilladher  

The domestic business of Ipca continued to remain strong and should continue to outperform the Indian Pharmaceutical market. Strong API capabilities and diversified models benefit the company in the current environment. The brokerage’s FY23E and FY24E earnings broadly remain unchanged.  

The domestic brokerage firm recommends a Buy rating on the stock with a target price of Rs 1,225 per share, which implies over 19 per cent upside, based on 23x FY24E earnings. It said the stock remains our preferred pick in the mid-cap space.